The Pound Euro (GBP/EUR) exchange rate experienced a lot of volatility last week, driven by uncertainty around the long-term economic impacts of coronavirus.
What’s Been Happening: GBP/EUR Fluctuates on ‘Fragile’ Economic Recoveries
Early in the week, the Eurozone’s economic sentiment indicator rose to its highest level since it hit a record high in May 2000. Though the Euro initially climbed in response, demand for USD caused it to relinquish its gains due to its negative correlation with the ‘Greenback’.
Similarly, Germany’s better-than-expected jobs figures gave the single currency a temporary lift, but the continued spread of the Delta variant in Europe dragged EUR exchange rates down.
The Euro hit a high point against the Pound after the manufacturing PMIs for both Germany and the Eurozone beat expectations to show continued factory growth, with the Eurozone’s PMI reaching a new record high.
However, comments from European Central Bank (ECB) President Christine Lagarde weighed on the Euro as she reiterated the ECB’s dovish approach and warned of the Eurozone’s ‘fragile’ economic recovery.
Meanwhile, the Pound also see-sawed throughout the week. The latest consumer credit report, which indicated increased consumer confidence, was offset by fears of post-furlough redundancies and post-Brexit staff shortages.
Brexit optimism then supported the Pound, with the EU postponing goods checks on the Irish Sea by another three months and the UK unveiling its new state subsidy plans.
Sterling slipped following the Bank of England’s (BoE) dovish response to warnings of overinflation, with the central bank defending its cautious approach to monetary policy.
But a generally optimistic outlook on the UK economy allowed the Pound Euro exchange rate to rally as the single currency stumbled on Christine Lagarde’s comments.
Three Things to Watch Out for This Week
- German Industrial Data
Germany’s factory orders and industrial production data – out on Tuesday and Wednesday, respectively – are forecast to have increased in May after contracting in April. As Germany is the Eurozone’s industrial powerhouse, these reports could strengthen the Euro.
- Eurozone Coronavirus
Delta variant cases are on the rise in Europe, with the World Health Organisation and the French government’s leading scientific adviser warning of an imminent fourth wave. Any negative coronavirus news in the coming week may weigh heavily on the single currency.
- UK GDP
The UK’s GDP three-month average on Friday is expected to grow again by 3.9%, which would indicate the country’s increasingly strong economic recovery. If the figures match the forecast, GBP exchange rates could rise.
With more data releases coming out of the Eurozone than the UK this week, and most of them expected to be positive, it’s possible that the Pound Euro exchange rate could drop. However, the Euro may be undermined by the spread of the Delta variant, as the ongoing pandemic continues to create uncertainty.