The GBP/EUR exchange rate swung higher this week, driven mostly by a slump in the Euro after the European Central Bank (ECB) opened the door to possible rate cuts later in the year.
Euro Tumbles as ECB Considering Stimulus Plans
The Pound to Euro exchange rate initially slumped this week, with the pairing touching a fresh five-month low on Monday as political uncertainty in the UK dented Sterling sentiment.
This weakness in GBP/EUR didn’t last long however, with the pairing rallying on Tuesday as a speech by ECB President Mario Draghi sent the Euro tumbling.
Speaking at the ECB’s annual Sintra conference, Draghi signalled that the bank is prepared to pump fresh stimulus into the Eurozone, be it through additional quantitative easing or even a rate cut, the prospect of which drove the single currency lower.
The Pound was then able to carry this momentum into the mid-week thanks to reports that Labour leader Jeremy Corbyn was preparing to back a second Brexit referendum.
However Sterling faced a major hurdle in the second half of the week, as the Bank of England’s latest policy decision proved more dovish than expected, prompting a temporary slump in the Pound that robbed it of its momentum.
The Euro then made one final attempt to recover as the very end of the week after a modest improvement in growth in the Eurozone’s private sector this month buoyed EUR exchange rates.
Pound to Face Headwinds as Political Uncertainty Grows?
Looking ahead to next week, in the absence of any notable economic data through the first half of the session we are likely to see the focus return to the Conservative leadership contest.
This could prompt some volatility in the GBP/EUR exchange rate throughout the week as markets speculate on what a Boris Johnson or Jeremy Hunt premiership could mean for Brexit.
Meanwhile for EUR investors the focus will be on the Eurozone’s latest CPI figures, where another drop in inflation is likely to prompt further speculation that the ECB will move lower interest rates this year.
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