The Pound Euro exchange rate remained volatile over the course of the week, as the Omicron variant and soaring Covid-19 cases placed pressure on both currencies. A stronger Pound (GBP) boosted the currency at the end of the week to its highest point since February 2020.
What’s Been Happening: Covid-19 Cases Soar as UK Keeps Restrictions Off the Table
The GBP/EUR exchange rate climbed steadily at the beginning of the week to reach its highest point since February 2020.
Both currencies were affected by soaring Covid-19 cases as the week went on with pressure weighing particularly heavy on the Euro. With many European counties such as France seeing record case numbers, the imposing of fresh restrictions limiting the Euro’s upward potential.
The Pound shrugged off some of this weight over the course of the week following reports from UK health bodies that the Omicron variant posed less severe a threat than first thought. UK Prime Minister Boris Johnson’s insistence that he would not be introducing any severe restrictions may also have helped boost Sterling.
Weekly Highlights
1. Covid-19 Cases and Omicron Variant
A continuing rise in Covid-19 cases across the UK and Europe is likely to continue to weigh on the currency pair, with the announcement of any additional restrictions likely to hamper upward movement.
2. Eurozone Inflation
The Eurozone’s consumer price index is expected to report inflation slowed last month, potentially putting pressure on the Euro as this is likely to alleviate some of the pressure on the European Central Bank (ECB) to start tightening monetary policy.
3. Manufacturing and Services PMIs
Whilst the UK’s manufacturing PMI came in above forecasts, the service sector is predicted to fall in both the UK and Eurozone.
GBP/EUR Forecast
Further developments surrounding the sharp rise in Covid-19 cases is sure to affect both currencies, with France’s imminent introduction of vaccine passes likely to cause some uncertainty in the Euro. The Pound could also be affected by ongoing negotiations between the UK and EU regarding the Northern Ireland Protocol, particularly if the UK renews threats to invoke Article 16.