The Pound to Euro (GBP/EUR) exchange rate fell back this week amid disappointment and confusion over the UK’s new lockdown policy.
Pound undermined by Government’s confusing lockdown update
The Pound took a dive this week, falling sharply through the first half of the session as a very slight easing of the UK’s lockdown measures failed to inspire GBP investors, particularly amid widespread confusion over what some of the changes actually meant for day-to-day life.
Combined with renewed Brexit jitters, this left Sterling on the back foot against the Euro through most of the week, with the Pound only finding some short-lived gains on Wednesday after the UK’s latest GDP figures showed that economic growth contracted less than feared in the first quarter.
Meanwhile, the Euro got off to a strong start this week, bolstered by optimism as more of Europe began to reopen, stoking hopes the Eurozone economy will be able to bounce back quicker than previously thought.
However the single currency then struggled to find support through the latter half of the week, as Germany officially fell into a recession, after a substantial contraction in economic growth in the first quarter of 2020.
UK data in focus next week
Looking ahead to next week, a wealth of UK economic data looks set to act as the main catalyst of movement in the GBP/EUR exchange rate.
This could limit the appeal of Sterling through the first half of the week as the UK is expected to report a sharp jump in unemployment claims and plunge in inflation last month.
Placing further pressure on the Pound though the second half of the session will be the UK’s flash PMIs, which are forecast to report that economic activity in the private sector slumped to a new all-time low in May.
Meanwhile, the Euro could be offered some support at the start of next week if the latest ZEW surveys report that economic sentiment in the Eurozone remained positive in May as more European countries began reopening their economies.
This may also be reflected in the Eurozone’s own PMI figures, which are expected to show a significant improvement in private sector activity this month as millions of Europeans returned to work.