Pound Euro Exchange Rate Wavers in a Narrow Range
(Updated 16:30, 29/7/21) The Pound Euro (GBP/EUR) exchange rate has continued to trade sideways today, with some small fluctuations, despite strong data from the Euro area.
Economic sentiment in the Eurozone rose for the sixth consecutive month to hit an all-time high. Meanwhile, Germany’s harmonised inflation rate jumped to 3.1%, above predictions of 2.9%, suggesting a robust recovery in the EU’s biggest economy.
In addition, disappointing data from the US extended the US Dollar’s (USD) downside, supporting the Euro by way of the currencies’ negative correlation.
Despite this, the Pound Euro exchange rate has hovered around the €1.175 mark, with Sterling ticking slightly higher overall at the time of writing. Continued optimism over last week’s fall in Covid cases, the UK’s economic rebound and a cooling of Brexit tensions seems to be supporting the Pound.
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Pound Euro Exchange Rate Holding Firm despite Rise in UK Covid Cases
The Pound Euro (GBP/EUR) exchange rate is holding its ground this morning, just shy of yesterday’s two-month high, despite a rise in UK Covid cases.
The EU’s own coronavirus concerns could be putting downward pressure on the single currency, allowing GBP/EUR to sustain its highs despite headwinds.
Pound (GBP) Capped by Covid Concerns
The Pound (GBP) is holding on to the gains it has made in recent days, despite yesterday’s Covid data showing a rise in cases.
The number of positive Covid tests had been falling steadily for a week, which, paired with strong economic data, had been building optimism in the UK’s post-pandemic recovery.
However, yesterday’s data showed an increase of 4,000 confirmed Covid cases.
So far today, GBP investors seem unfazed by the rise.
One factor supporting the Pound is yesterday’s news that the UK will scrap quarantine rules for fully jabbed EU and US travellers, which is expected to provide a boost to the UK’s tourism industry for the remainder of the summer.
Sterling has also enjoyed a respite from the ongoing Brexit tensions over the Northern Ireland protocol after the EU paused legal proceedings against the UK earlier this week. By extending such an olive branch, Brussels hopes ‘to provide the necessary space to reflect on these issues and find durable solutions’.
Euro (EUR) Struggling despite Tailwinds
The Euro (EUR), meanwhile, is failing to make any gains against the Pound, despite Germany’s unemployment rate falling from 5.9% to 5.7%, slightly better than the predicted 5.8%.
Yesterday’s dovish decision from the Federal Reserve is also supporting the Euro by way of its negative correlation with the US Dollar, which fell following the Fed’s announcement.
Still, the Euro has yet to capitalise on these supportive factors against the Pound this morning.
One explanation could be the coronavirus concerns that continue to weigh on the single currency. While the EU recently achieved its target of giving 70% of adults inside the EU at least one jab, there are still fears that the Delta variant could disrupt the bloc’s progress in tackling the pandemic as well as its summer tourism season.
However, the Euro’s economic sentiment figures have beaten expectations this morning to hit a new record high. As of writing, this is yet to have an effect on the Pound Euro pair.
Pound Euro Exchange Rate Forecast: Could the Pair Face a Volatile Afternoon?
With a number of important releases coming up, we could see some volatility in the Pound Euro exchange rate.
First off, the rise in economic confidence in the Eurozone could begin to see GBP/EUR turn around as the morning unfolds.
Germany’s inflation rate is expected to jump from 2.3% to 3.3% when the figure is released later on, which would suggest a strong recovery in the Eurozone’s biggest economy. Such news could strengthen the single currency.
However, with positive results predicted for the US GDP growth rate and jobless claims reports, we may see the US Dollar regain some ground this afternoon. As USD and EUR share a negative correlation, this could dent the latter.
Meanwhile, no more data is due out of the UK, which may leave Sterling open to losses. Will the UK’s recent optimism persist, or will it fade in the face of rising Covid cases?