Pound Tumbles Following Reopening Delay, Dovish ECB Triggers Slump in Euro

GBP/EUR Exchange Rate: Pound Plunges amid Dismay Over Reopening Delay 

After rebounding in the second half of last week’s session, the Pound to Euro (GBP/EUR) exchange found itself back on the defensive in the early part of this week.  

This downtrend in Sterling followed Boris Johnson’s announcement on Monday that plans to lift all the remaining coronavirus restrictions in England on 21 June will be delayed by up to four weeks until 19 July. 

Unsurprisingly, the announcement was met by disappointment from GBP investors as the delay to the reopening date dampens the prospects for a strong UK economic recovery over the summer. 

While the PM is determined to not make any further delays to ‘freedom day’, there are concerns that a sharp rise in deaths could force his hand, and as a result Sterling is likely to remain highly sensitive to domestic coronavirus statistics going forward. 

GBP/USD Exchange Rate: Strong Inflation Figures to Revive Sterling? 

The GBP/USD exchange rate struck a one-month low in the first half of this week, as England’s reopening delay, extended the downtrend witnessed in the pairing towards the end of last week’s session. 

However, the release of the UK’s consumer price index injected some life back in the Pound on Wednesday, after revealing a much sharper-than-expected acceleration of domestic inflation. 

May’s figures showed that inflation soared to 2.1%, putting it back within the Bank of England’s (BoE) target range for the first time since 2019, potentially putting more pressure on the bank to start discussing the tapering of its quantitative easing programme. 

The publication of the UK’s latest retail sales could provide additional support to the GBP/USD exchange rate at the end of this week’s session, if sales growth also beat expectations last month. 

USD/GBP Exchange Rate: US Dollar Buoyed by Cautious Trade 

Outside a short-sharp shock following the publication of the latest US CPI figures last week, the USD/GBP exchange rate has been largely able to maintain a positive trajectory in recent trade. 

This uptick in the US Dollar has mostly been attributed to a prevailing risk-off mood, which alongside a healthy appreciation of US Treasury yields has bolstered demand for the safe-haven currency. 

However, movement in USD exchange rates begun to narrow on Tuesday as investors brace for the latest interest rate decision by the Federal Reserve. 

While no policy changes are expected from the Fed this month, the US Dollar could face some headwinds if the bank continues to suggest that the recent surge in inflation is ‘transitory’, and that it still not ready to start tapering its bond purchases. 

EUR/USD Exchange Rate: Euro Undermined by Dovish ECB 

The EUR/USD exchange rate faced some heavy selling pressure in the second half of last week, in the wake of the European Central Bank’s (ECB) latest rate decision. 

While the bank’s decision to leave its monetary policy untouched didn’t come as a surprise, EUR investors were nonetheless disappointed by President Christine Lagarde’s accompanying comments, as she stated it is still too early to starting discussing the bank’s exit from its PEPP programme. 

However, the Euro has so far fared better this week, on the back of better-than-expected industrial production figures from the Eurozone. 

Looking ahead, EUR data releases are thin on the ground through the remainder of this week’s session, but the publication of the Eurozone’s latest PMI figures in the first half of next week could provide some lift to the Euro if they print positively. 

Matthew Andrews

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