The GBP/EUR exchange rate continued to trend higher this week as mostly as a result of ongoing Brexit optimism and cautious trade ahead of the European Central Bank’s (ECB) latest policy meeting.
Brexit Optimism Extends Upside in the Pound
The Pound got off to a strong start this week, racing higher on Monday on the back of a solid GDP release, which helped to dispel fears the UK economy may slip into a recession this year.
This was followed up by a robust UK jobs report as well as continued Brexit optimism, which underpinned Sterling throughout the session.
Meanwhile the focus for EUR investors this week was undoubtedly on the ECB, with investors wary of the Euro throughout much of the session as they braced for unveiling of the bank’s long awaited stimulus package.
The measures announced by the ECB included cutting its deposit rate to -0.5% as well as reintroducing its quantitative easing programme to the tune of €20bn a month from November.
An initial knee-jerk reaction to the announcement saw GBP/EUR propelled to a two-month low, before the Euro quickly bounced back on ECB President Mario Draghi’s accompanying policy statement.
Is there Room for Sterling to Extend its Gains as Politics Remain in Focus?
Looking ahead to next week, UK political uncertainty looks like it will continue to play a role in dictating movement in the GBP/EUR exchange rate.
Adding to the ongoing uncertainty posed by expectations of an upcoming general election, the UK Supreme Court will deliver its verdict on Boris Johnson’s proroguing of parliament. This could inject fresh volatility into Sterling, especially if it rules against the government.
Next week will also see the Bank of England’s (BoE) hold its latest policy meeting.
While the BoE is likely to leave monetary policy unchanged as it awaits more clarity on Brexit, GBP exchange rates may still be influenced by the bank’s economic outlook.
Meanwhile, the latest ZEW economic sentiment surveys are likely to be in focus for EUR investors next week.
Sentiment fell sharply in August, with the survey’s worst reading since 2011. Should we see a similarly gloomy outlook from economists on Tuesday then it’s likely we could see the Euro move lower in response.