The GBP/EUR exchange rate skyrocketed this week, breaking through the key physiological barrier of €1.20 in response to a cabinet reshuffle in the UK and widespread weakness in the Euro.
Pound Soars as Javid’s Resignation Boosts Budget Expectations
The Pound crept steadily higher against the Euro through the first half of this week’s session, advancing in spite of the UK’s latest GDP figures revealing that the UK economy stalled at the end of 2019.
However the bulk of Sterling’s gains were focused at the latter half of the week, following the shock resignation of Sajid Javid as Chancellor of the Exchequer.
Amid a reshuffle of Boris Johnson’s cabinet, Javid chose to resign rather than replace his team of aides at the treasury with a team from Number 10.
The sharp upswing in GBP/EUR came on the expectation that Javid’s replacement may make the treasury more amenable to Johnson’s spending plans, and result in an even more ambitious Budget next month.
Meanwhile, the Euro faced a persistent sell-off this week, which was kicked off by some political uncertainty in Germany following the sudden resignation of Angela Merkel’s heir apparent Annegret Kramp-Karrenbauer.
Heaping further pressure on the single currency was a warning from the European Commission on Thursday that the Coronavirus is a ‘key downside risk’ to the European economy.
Closing out the week was Germany’s own GDP figures, which drove the Euro even lower as they stoked fears that the Eurozone’s largest economy is on the brink of a recession after growth stagnated in the last quarter of 2019.
Robust UK Data to Propel Sterling Even Higher?
Looking ahead, it looks to be a busy week for GBP investors, with the UK set to publish a slew of high impact data releases.
In the first half of the week the focus will be on the UK’s latest employment and inflation figures, where some upbeat data may buoy the Pound on hopes it will reduce the pressure on the Bank of England (BoE) to cut interest rates this year.
Then in the second half of the week the focus will turn to the UK’s latest PMI figures, with GBP investors eager to see where the private sector will have been able to sustain its ‘Boris bounce’.
Meanwhile, the main catalyst in the Euro next week looks to be the Eurozone’s own PMI release, with the single currency potentially facing further pressure if the bloc’s private sector slows in February.