The Pound to Euro (GBP/EUR) exchange rate soared to its best levels since May last week, before crashing back to earth amidst concerns over how long the UK’s lockdown may last.
What’s Been Happening: Pound Rally Cut Short by Lockdown Concerns
After a slow start to the session, the Pound began to find some notable support against the Euro and the majority of its other peers in the middle of last week, driven by hopes for a strong rebound in the UK economy this year.
This was underpinned by the UK’s aggressive vaccination rollout, with over 7 million people having received at least one dose of a vaccine, GBP investors were hopeful that the UK could emerge from lockdown before many other countries.
However, Sterling sentiment then tanked after the Boris Johnson warned that it is ‘too early’ to begin discussing any lifting of lockdown measures.
These losses were then reinforced by some dismal UK data releases at the end of the session.
Meanwhile, the Euro faced some setbacks later week amidst political uncertainty in Italy and some mixed messages from the European Central Bank (ECB) following its latest policy meeting, as its upbeat outlook was undermined by its concerns over the strength of EUR exchange rates.
But the Euro was able to find some solid gains at the end of the week however on the back of some stronger-than-expected PMI figures.
Three Things to Watch Out for This Week
1. Coronavirus Developments
With concerns over the spread of new variants growing and Europe continuing to lag against the UK in terms of vaccination, we could see the GBP/EUR exchange rate attempt another move higher this week.
2. UK Jobs Report
In the spotlight for GBP investors this week will be the UK’s latest unemployment figures, with the Pound likely to face some headwinds if the jobless rate rose above 5% in November as forecast.
3. German GDP
Driving movement in the EUR exchange rate this week will be Germany’s latest GDP release, with the Euro potentially finding support in the latter half of the session if the country managed to avoid a contraction in the fourth quarter.
GBP/EUR Forecast
Looking ahead, the GBP/EUR exchange rate tick higher again this week, if the UK’s vaccination rollout continues to outpace efforts in the EU.