The Pound Euro (GBP/EUR) exchange rate experienced some turbulent trade last week, but gained ground overall, amid rising Omicron cases and a surprise rate hike.
So far today, GBP/EUR has tumbled as the UK refuses to rule out further Covid restrictions.
What’s Been Happening: GBP/EUR Firms during Eventful Week
The Euro (EUR) wobbled through the first part of last week as markets repositioned ahead of the central bank interest rate decisions.
After the European Central Bank (ECB) announced its cautious tapering plans to begin from March 2022, the single currency edged lower. Both the Federal Reserve and the Bank of England (BoE) made more hawkish decisions.
EUR then softened further on Friday after business confidence in Germany hit a ten-month low. A looming winter recession in Europe’s largest economy put pressure on the Euro.
Meanwhile, the Pound (GBP) also wavered early in the week as Omicron concerns offset booster-jab optimism, strong employment data and a ten-year high CPI.
Sterling then spiked after the BoE unexpectedly raised its Bank Rate. However, worries that rising Covid cases would derail the UK recovery – fuelled by a sharp slowdown in service-sector activity – saw GBP relinquish most of its gains.
GBP/EUR then edged higher, despite an initial drop, after the UK’s November retail sales beat forecasts.
Three Things to Watch Out for This Week
- Omicron
The situation around the new variant is evolving rapidly, with further UK restrictions possible before Christmas. Any negative headlines in the UK or the EU could dent the respective currencies.
- UK Public Sector Borrowing
If UK public sector borrowing prints higher than forecast, Sterling could struggle. The new Covid strain has raised fears about the state of the public purse.
- German Consumer Confidence
More poor German data could weigh on the Euro this week, as consumer confidence is set to fall again heading into January.
GBP/EUR Forecast
If the UK government is forced to bring in new Covid measures before Christmas, GBP/EUR could stumble this week.