The Pound Euro (GBP/EUR) exchange rate fluctuated by over a cent last week, amid coronavirus uncertainty and CPI releases from the US, the UK and the Eurozone.
What’s Been Happening: GBP/EUR Undermined by Coronavirus Fears
Fears that new lockdown measures could undermine the Eurozone’s economic recovery weighed on the Euro (EUR) through most of last week, as did its negative correlation to a strengthening US Dollar (USD).
Mixed movement in the US Dollar then caused the Euro to fluctuate as the week went on.
However, the single currency managed to firm on Friday despite the Eurozone’s trade surplus unexpectedly narrowing and inflation in the bloc easing from 2% to 1.9%.
Meanwhile, the Pound faced some turbulence at the start of the week as the UK’s reopening optimism was undermined by growing Covid cases and the Bank of England’s (BoE) Financial Stability Report, which warned of potential risks to the UK’s economic recovery.
Sterling spiked on Wednesday after the UK’s inflation rate soared to 2.5% and then again on Thursday following hawkish remarks from two BoE policymakers, who suggested the UK may need to taper bond purchases ‘fairly soon’.
However, with new warnings from the scientific community about the government’s reopening strategy and daily Covid cases breaking above 51,000, the Pound shed its gains, hitting a ten-day low against the Euro this morning.
Three Things to Watch Out for This Week
- Coronavirus News
With the UK lifting restrictions and EU countries reimposing them just as the summer holidays start, both currencies could be highly sensitive to coronavirus headlines.
- ECB Interest Rate Decision
As the Eurozone’s inflation rate eased last week, it’s likely that the European Central Bank (ECB) will strike a dovish tone, which could dent the Euro.
- Markit Flash PMIs
The flash PMIs for the UK, the Eurozone and Germany on Friday may drive some movement, particularly if there are any unexpected results.
With the ongoing pandemic still creating global uncertainty, and positive data expected from both the UK and the Eurozone, we could see another week of GBP/EUR volatility.