Pound Euro Exchange Rate Buoyed by European Covid Concerns
The Pound Euro (GBP/EUR) exchange rate is edging higher this morning as more European nations announce plans to reimpose Covid restrictions amid surging cases.
At the time of writing the Pound Euro exchange rate is trading at around €1.1767, virtually unchanged from this morning’s opening levels.
Euro (EUR) Softens as European Nations Reinstate Restrictions
The Euro (EUR) is trading on the back foot this morning as EUR investors fear the reintroduction of Covid restrictions in most European countries will inevitably weaken growth in the Eurozone.
EUR sentiment has weakened after Germany and Portugal became the latest countries to announce that they will be tightening measures post-Christmas as the Omicron Covid variant sweeps across the continent.
The World Health Organization’s (WHO) European head, Hans Kluge warns countries need to brace for a ‘significant surge’ in cases and that Omicron will place considerable strain on European health systems.
Kluge warned:
‘We can see another storm coming. Within weeks, Omicron will dominate in more countries of the region, pushing already stretched health systems further to the brink.’
The worry for EUR investors is how long these restrictions could remain in place for and how much they could impact economic activity in the first quarter of 2022.
Pound (GBP) Sidelined by Underwhelming GDP Figures
At the same time, the Pound (GBP) is struggling to take advantage of the Euro’s weakness this morning, following the publication of the UK’s latest GDP release.
According to finalised figures published by the Office for National Statistics (ONS), domestic growth in the third quarter was revised down from 1.3% to 1.1%. At the same time, growth in the second quarter was also revised down from 5.5% to 5.4% further limiting the upside potential of the Pound Euro exchange rate.
Darren Morgan, the director of economic statistics development at the ONS, commented on the release:
‘Our revised figures show UK GDP recovered a little slower in the third quarter, with much weaker performances from health and hairdressers across the quarter, and the energy sector contracting more in September, than we previously estimated.’
Most worrying for GBP investors is that this slowing of growth came during the period in which restrictions were completely lifted, which bodes poorly for growth in Q4 following the emergence of Omicron and the implementation of the UK government’s Plan B restrictions.
Pound Euro Exchange Rate Forecast: UK Lockdown Announcement to Sink Sterling?
Looking ahead, the Pound Euro (GBP/EUR) exchange rate is likely to remain sensitive to Covid headlines.
While UK Prime Minister Boris Johnson has confirmed that no new restrictions will be imposed this side of Christmas, the government is widely expected to announce plans for a ‘circuit breaker’ lockdown after the holidays, any confirmation of which is likely to weaken the Pound.
Meanwhile, EUR investors will be keeping an ear out for the announcement of any more restrictions by other countries and is likely to remain suppressed as infections on the continent continue to rise.
However, any movement in the pairing could be limited as trade becomes increasing thin ahead of the holiday period.