The Pound Euro (GBP/EUR) exchange rate bounced back last week after slumping in response to the UK’s lifting of lockdown restrictions.
What’s Been Happening: GBP/EUR Climbs on Renewed UK Optimism
The Euro managed to firm at the beginning of last week, with no clear catalyst driving the upside. However, it began to soften in the run up to the European Central Bank’s (ECB) latest interest rate decision.
As expected, the central bank kept its interest rates unchanged at a record low of 0%, and it gave vague forward guidance. This dovishness disappointed EUR investors, causing the single currency to dip further.
On Friday, European PMIs smashed forecasts: both Germany and the Eurozone saw business activity expand at a record pace. The Euro initially spiked but then dropped back down to a one-week low against the Pound.
Meanwhile, the GBP/EUR pair tumbled through the first half of the week, as the UK’s rising Covid cases and lifting of restrictions rattled investors.
GBP/EUR then recovered from the initial shock, and new data from the UK pointed to a continued economic recovery.
Company reports showed better-than-expected sales, while factory orders soared and business optimism remained high.
The Pound held steady on Friday despite both the manufacturing and services PMIs printing below expectations. Overall business activity slowed to a four-month low, preventing GBP/EUR from making further gains.
Three Things to Watch Out for This Week
- Coronavirus News
Covid remains a big concern for both EUR and GBP investors. This week, the impact of the UK’s lockdown lifting should become clear. An increase in cases could dent the Pound.
- CBI Distributive Trades
The Confederation of British Industry’s retail sales survey is the UK’s biggest release this week. The figure is set to ease slightly, but could it beat forecasts like it did last month?
- Eurozone Inflation Rates
Both Germany’s and the Eurozone’s inflation rates are forecast to rise, though the latter’s is only expected to increase by 0.1%. Above-expected inflation could boost the Euro.
GBP/EUR Forecast
With a large amount of economic data coming out of the Eurozone, and most of it expected to be positive, this week could be a strong one for the Euro.