(Updated 10:30, 29/6/21) GBP/EUR continued to slip today, despite Sajid Javid delivering a relatively upbeat speech to MPs on the lifting of restrictions yesterday evening.
In his address, the new health secretary gave reassurance that the 19 July date for lifting the remaining restrictions was highly likely.
This news was potentially offset by the continuing spread of the Delta variant across the UK, with many countries now banning or quarantining unvaccinated UK travellers.
Despite a spike in GBP/EUR yesterday, the Pound is now weaker against the Euro than it was at the beginning of this week’s trade.
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Last week the Pound Euro exchange rate fell following the Bank of England’s (BoE) interest rate decision and dovish accompanying statement.
What’s Been Happening: GBP/EUR Slides on Dovish BoE Comments
The Euro was subdued at the start of the week amid mixed data releases – including low consumer confidence and better-than-expected flash PMIs – and growing coronavirus concerns around the spread of the Delta variant.
However, Thursday saw the Euro soar against the Pound as German business confidence climbed to 101.8 in May, its highest level since November 2018, beating market forecasts of 100.6. The EUR upside was extended by a weakening US Dollar (USD), with the single currency able to capitalise on its negative correlation with the ‘Greenback’.
On the other hand, the Pound strengthened through the first part of last week, buoyed by hawkish expectations ahead of the BoE’s policy decision as well as a jump in the Confederation of British Industry’s order book balance and reopening optimism.
Yet the BoE’s dovish announcement disappointed investors. As expected, the bank kept interest rates unchanged at 0.1%. However, the accompanying statement gave no mention of when the bank may begin tapering bond purchases and the BoE described the current rate of inflation as ‘transitory’. As a result, Sterling slumped.
This weighed on the Pound through to the end of the week, though the downside may have been limited to some extent by the Confederation of British Industry’s distributive trades data, which came in above expectations at +25, its highest level since August 2018.
Three Things to Watch Out for This Week
- UK Lockdown Lifting
This evening the new health secretary Sajid Javid is going to update MPs on a review of the UK’s coronavirus data to decide whether the country can fully reopen on 19 July or possibly even sooner. Any positive news could have a strong effect on GBP/EUR.
- Eurozone Inflation
The Eurozone’s flash inflation figures for this month are due on Wednesday. The 1.9% rise in inflation which is forecast could boost the Euro, though any upside is likely to be limited by the European Central Bank’s (ECB) continuation of its ultra-accommodative monetary policy.
- US Non-Farm Payrolls
The US economy is forecast to have added another 675,000 jobs this month. With the Euro’s strong negative correlation to the US Dollar, these figures could put significant downward pressure on the single currency if there’s a strong upside in USD on Friday.
If the UK hints at an earlier-than-anticipated end to coronavirus restrictions today, the Pound could catch a strong tailwind. Otherwise, with many positive data releases forecast from the Eurozone, the Euro may potentially have the edge this week, though Friday could see GBP/EUR bounce back.