The Pound Euro (GBP/EUR) exchange rate climbed last week, hitting a 16-week high before retreating slightly as the week came to a close.
The Euro (EUR) started the week somewhat subdued, as German business sentiment and Eurozone consumer confidence came in below expectations.
Vaccine optimism temporarily boosted the Euro after the EU hit its July target for giving 70% of adults within the EU at least one Covid jab, but the negative data weighed on the single currency causing it to weaken.
The Pound Euro pair traded sideways on Thursday, but the single currency regained some losses at the end of the week, benefitting from a series of positive economic data releases and its negative correlation to a weakening US Dollar (USD).
Meanwhile, the Pound (GBP) gained consistently through the first part of the week, jumping on Tuesday as Covid cases fell for the seventh consecutive day.
News that the EU had paused legal proceedings against the UK for its breach of the Northern Ireland protocol agreement also supported the Pound.
However, a lack of data and small daily rises in Covid cases left Sterling vulnerable in the second half of the week, though sustained optimism limited the losses.
Three Things to Watch Out for This Week
- German Factory Orders
Germany’s factory orders are expected to have grown in June by 1.5%, compared to May’s slump of 3.7%. Such a recovery could boost the Euro.
- BoE Interest Rate Decision
The Bank of England (BoE) is expected to keep interest rates unchanged, but recent comments indicate a split among BoE policymakers. As such, any hawkish or dovish hints in forward guidance could move the Pound.
- Coronavirus Developments
At a crucial time in tackling the pandemic, any news of rising case numbers or vaccination success in the EU or UK will likely impact the respective currencies.
Pound Euro Forecast
If UK Covid cases continue to fall, the Pound Euro exchange rate could strengthen further this week. But if we start to see a rise in cases driven by the 19 July unlocking, the Euro may be able to capitalise on some positive data and gain against the Pound.