The Pound Euro (GBP/EUR) exchange rate tumbled to a two-month low last week, but managed to bounce back, as the UK introduced new Covid restrictions to slow the spread of Omicron.
GBP/EUR has gained ground this morning, perhaps supported by the UK’s ambitious booster-shot rollout.
What’s Been Happening: GBP/EUR Bounces Off Two-Month Low
The Euro (EUR) faced selling pressure early last week amid some troubling German data. Europe’s largest economy reported a slump in factory orders and worsening investor morale.
The single currency was then able to capitalise on the Pound’s (GBP) weakness thanks to comments from Martin Kazaks, a policymaker at the European Central Bank (ECB).
However, EUR relinquished some gains through the latter part of the week following more poor German data. The country’s trade surplus unexpectedly narrowed in October amid ongoing supply chain issues.
Meanwhile, the Pound initially firmed as a risk-on mood and a strong construction PMI supported Sterling.
But rising Covid cases prompted the UK government to bring in new restrictions, which saw GBP/EUR slump to a two-month low.
Sterling managed to recover some of these losses, seemingly due to investors buying the dip. However, a slowdown in UK GDP growth prevented a further recovery.
Three Things to Watch Out for This Week
- UK Employment Data
Economist expect that the UK labour market has continued to recover, which may boost GBP.
- Central Bank Decisions
The Federal Reserve, ECB and BoE all have interest rate decisions this week. A hawkish Fed could weigh on the Euro, while the ECB and BoE decisions will of course affect their respective currencies.
- Omicron
As the new variant spreads, how it impacts European countries and what restrictions they bring in could impact GBP/EUR.
GBP/EUR Forecast
Omicron, three big interest rate decisions and plenty of high-impact data releases: this week we could see significant volatility in GBP/EUR. If UK data prints strong, and if the US Dollar (USD) climbs, then the Pound could come out on top. However, UK Covid restrictions may remain a headwind for GBP.