Pound Euro Falls as Rising UK Covid-19 Cases Undermine Growth Outlook

UPDATE: The Pound Euro exchange rate fell this afternoon as weakening demand for the US Dollar encouraged investment its largest competitor, the single currency. The pairing is trading around €1.16 at the time of writing.

Doubts about the strength of the US economy following last week’s underwhelming economic data has provided some uplift for the EUR/GBP exchange rate today.

Meanwhile, growing concerns over England’s easing of lockdown restrictions has weighed on demand for the Pound today.

Jane Foley, an analyst at Rabobank, comments:

‘Net GBP long positions dropped back sharply. A sharp increase in the number of UK Covid cases could be undermining the growth outlook.’

GBP/EUR Exchange Rate Falls Despite England’s Lifting of Lockdown Restrictions

The Pound Euro exchange rate dipped this morning despite England lifting lockdown restrictions. But with some scientists predicted daily Covid-19 cases hitting 200,000 a day, GBP investors have become cautious. The pairing is currently fluctuating abound €1.16.

Professor Neil Ferguson, the architect of Britian’s lockdown strategy, said that it was ‘almost inevitable’ that the lifting of lockdown measures would bring around 100,000 daily cases of the coronavirus, despite roughly half of the UK being fully vaccination.

Ferguson commented:

‘The real question is do we get to double that – or even higher. And that’s where the crystal ball starts to fail. I mean, we could get to 2,000 hospitalisations a day, 200,000 cases a day – but it’s much less certain.’

Jeffrey Halley, an analyst at OANDA, also criticised the UK Government’s decision to lift lockdown restrictions, saying:

‘The reopening is occurring as delta-variant cases explode in the UK, and I expect nerves over whether this is the dumbest post-pandemic policy decision ever to cap gains in Sterling this week.’

In absence of any notable UK economic data today, concerns over surging Delta Covid-19 cases has limited the appeal of Sterling.

Euro (EUR) Edges Higher Despite Underwhelming Eurozone Economic Data

The Euro rose today despite last week’s underwhelming Eurozone economic data. The latest trade surplus figure narrowed by €3.4 billion, missing forecasts of a €5.5 increase, due to weak exports.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, commented on the latest Eurozone trade data:

‘The combined surplus with the US, UK and China—the eurozone’s three main trading partners—has weakened but not nearly enough to explain the collapse in the headline [figure].

‘In short, the direction in the headline numbers is now wildly at odds with the idea that eurozone external demand is booming as the global economy rebounds, but we’d take the Eurostat data with a heavy pinch of salt at this point.’

The EUR/GBP exchange rate has largely benefited from a weakened Pound today.

Concerns remain that the UK could face further lockdown periods in autumn and winter now that daily infection rates soar throughout England.

We could see the Euro to Pound exchange rate compromised, however, if the outlook for the Eurozone’s economy remains uncertain.

Last week also saw the release of the latest Eurozone industrial production figure, which fell below forecasts due to supply chain disruptions.

GBP/EUR Exchange Rate Forecast: UK PMI Data in Focus This Week

Euro (EUR) traders will await tomorrow’s release of the European Central Bank’s (ECB) leading survey. If this points to a robust recovery for the Eurozone’s economy, then we would see the EUR/GBP exchange rate head higher.

Pound (GBP) traders will be looking ahead to Wednesday’s UK public sector net borrowing figure for June and Friday’s flash PMI data for the services and manufacturing sectors.

Could an improvement in the UK’s economic recovery see Pound head higher later this week?

David Moore

Contact David Moore