Pound Euro Exchange Rate Edges Higher despite Covid Concerns

Pound Euro Exchange Rate Extends Upside

(Updated 16:30, 21 July 2021) The Pound Euro exchange rate has continued climbing today, despite warnings that the UK may need to reimpose lockdown measures next month.

Some members of the Scientific Advisory Group for Emergencies (Sage) have reportedly cautioned Boris Johnson that he may need to reintroduce some restrictions as early as August to prevent the NHS from being overwhelmed, if hospitalisations continue to rise.

Despite this, the Pound Euro exchange rate has continued to climb today, hitting a high of €1.16, buoyed by renewed optimism in the UK economy.

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Pound Euro Exchange Rate Remains Muted on UK Covid Situation

The Pound Euro (GBP/EUR) exchange rate has made some small gains this morning, but Sterling is still weighed on heavily by the worsening coronavirus situation in the UK.

The pair is currently hovering around the €1.158 mark – its lowest levels since late May.

Pound (GBP) Finds Respite amid Stock Market Rebound

The Pound (GBP) has caught a breather this morning after a challenging week. While the Pound Euro pair remains muted at a two-month low, it is showing a modest upward trend.

Sterling has been under significant pressure after the UK lifted most lockdown restrictions on Monday amid a third wave of coronavirus, prompting concerns over economic disruption, deaths, and the potential for new variants.

However, GBP seems to have a found a respite today as stock markets recover from Monday’s sharp selloff. The FTSE 100 is up 1.58%, with investors seemingly shaking off concerns about the global economic recovery.

The shift to a more upbeat market mood comes as UK retailer Next upgraded its profits guidance, repaid £29m in business rates relief, and announced a special dividend after smashing sales forecasts in the second quarter of this year.

While Next attributes the strong sales growth to pent-up demand, the company said it was ‘more optimistic about the outlook than we were three months ago’. This optimism seems to have spread into the stock market, boosting investor confidence in a recovering UK economy.

A fall in UK public sector borrowing may also have contributed to the market rebound, and the Pound’s upside, as the figure beat forecasts. Net borrowing dropped by 19.4% year on year in June as the UK economy strengthened and restrictions were eased.

However, borrowing is still well above pre-pandemic levels.

In addition, rising inflation caused debt service costs to increase despite reduced borrowing, which has soured the positive news slightly.

Will the upbeat economic news be enough to support Sterling today, or will Covid worries and increased debt costs undermine the Pound?

Euro (EUR) Adrift ahead of ECB Interest Rate Decision

The Euro (EUR), meanwhile, is somewhat adrift today, with EUR investors hesitant to place any aggressive bets ahead of the European Central Bank’s (ECB) interest rate decision tomorrow.

With the Eurozone’s latest CPI showing that inflation eased from 2% to 1.9% last month, the ECB is likely to keep its ultra-accommodative monetary policy in place. Expectations of a dovish stance from the central bank may be exerting a little downward pressure on EUR exchange rates this morning.

As such, the single currency has been left open to losses, with the Pound managing to edge up against the Euro despite ongoing concerns over the UK’s Covid situation.

Pound Euro Exchange Rate Forecast: Could the Pound Rebound?

Could Sterling bounce back from its Covid woes today? It’s currently trending upwards, driven by a positive economic outlook for the UK, but if the country’s coronavirus situation worsens then it could drop back down.

On the other hand, the Euro may be dented by the expectation of a dovish ECB decision tomorrow and rising coronavirus cases on the European continent, which could give Sterling room to climb.

Any upside in GBP/EUR could also be limited as stock markets rebound and risk appetite improves. The Euro may find some support from its negative correlation with the US Dollar (USD) as investors abandon the safe-haven ‘Greenback’ in pursuit of riskier currencies.