The Pound to Euro (GBP/EUR) exchange rate struck a new two-month low this week as markets cheered the announcement of the EU’s new coronavirus recovery fund.
Euro soars on hopes for speedy eurozone recovery
The Euro enjoyed considerable support this week as EUR investors welcomed the announcement of a €750bn EU relief fund.
The ambitious fund, dubbed the Next Generation EU plan by the European Commission, will aid Europe’s economic recovery from the coronavirus, through loans and grants.
The announcement reflected well on the single currency as not only did it buoy hopes for a relatively speedy recovery in the Eurozone, but also helped to ease concerns over a lack of solidarity in the EU over the financial response to the pandemic.
The Pound meanwhile, got off to a strong start this week, rallying through the first half of the session as Boris Johnson announced plans to start reopening the UK economy, beginning with allowing non-essential shops to open their doors from 15 June.
However, this goodwill towards GBP quickly faded in the second half of the week, as Sterling sentiment was undermined by fresh Brexit uncertainty after the UK government reiterated its position that the transition period will not be extended past December.
More GBP Brexit woes ahead?
Looking ahead to next week’s session, is likely we could see the Pound come under pressure as the UK and EU hold their latest round of Brexit talks.
This will be the final round of negotiations before a ‘high level conference’ to discuss progress towards a deal, which could see the UK walk away from talks if some kind of breakthrough is not found this week.
Meanwhile, the focus for EUR investors next week will be on the European Central Bank’s (ECB) latest rate decision.
Market will be looking to see if the ECB decides to expand its Pandemic Emergency Purchase Programme (PEPP) or whether policymakers feel the EU’s new recovery fund will ease some of the pressure on the bank to prop up the Eurozone.
Also of note, will be the Eurozone’s latest retail sales figures, with the Euro potentially facing some headwinds amidst expectations for a dramatic collapse in sales growth in April.
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