Trade in the GBP/EUR exchange rate was mixed this week as markets reacted to the appointment of a new UK PM and the European Central Bank’s (ECB) latest policy decision.
Pound Initially Buoyed by Boris Johnson’s First Days as PM
GBP and EUR investors were kept busy this week as they had to contend with Boris Johnson’s victory in the Conservative leadership election and a key ECB rate decision.
Johnson’s ascension to PM initially proved positive for the Pound this week, as it helped bring an end to short-term political uncertainty in the UK.
Meanwhile the Euro struggled through the first half of the week on the back of some abysmal Eurozone manufacturing figures, which stoked speculation that the ECB could surprise markets with a rate cut this month.
However the GBP/EUR exchange rate fell back from its best levels in the latter half of the week as the ECB ultimately chose to keep rates on hold, with the bank also appearing less dovish than expected thanks to some choice words from President Mario Draghi.
This downturn in GBP/EUR was accentuated by the EU’s response to Johnson’s first statement in Parliament, with senior EU officials rejecting the new PM’s plans to negotiate a new withdrawal deal that doesn’t include the Irish backstop.
How Will the BoE’s Rate Decision Impact the Pound Next Week?
Looking ahead to next week, the main catalyst of movement in the Pound to Euro exchange rate is likely to be the Bank of England’s latest rate decision.
While no policy changes are expected from the bank when it concludes its meeting on Thursday, we could see Sterling move lower in response to what is expected to be a more dovish tone in the bank’s forward guidance.
On top of this expect to see the Pound remain political sensitive next week, with GBP exchange rates likely to come under further pressure if Boris Johnson continues to push his plans to drop the Irish backstop.
Meanwhile the focus for EUR investors will be on the Eurozone’s GDP figures, which is likely to see the Euro soften if growth slowed in line with expectations in the second quarter.
However potentially limiting these losses may be the bloc’s accompanying employment figures, should the recent downtrend in the Eurozone’s unemployment rate have continued into June.