The Pound to Euro (GBP/EUR) exchange rate fell back this week as Sterling increasing sensitivity to market sentiment left it exposed to losses as this sentiment soured.
Pound Cements Risk-Sensitive Status
After briefly climbing to a three-month high against the Euro on Monday, the Pound found itself on the defensive through much of this week’s session against a backdrop of souring market sentiment.
With investors growing increasingly concerned by Brexit and the UK’s struggling to get to grips with Europe’s largest coronavirus outbreak, Sterling has found itself increasingly vulnerable to investor sentiment in recent weeks, behaving more and more like a risk-sensitive currency.
This sudden slump in market mood came in response to some gloomy forecasts from the Federal Reserve, whose predictions for a sharp contraction in US GDP this year appeared to puncture hopes for a V-shaped recovery in the global economy.
Meanwhile, the Euro pushed back against the Pound’s initial gains with week with the publication of the Eurozone’s latest GDP estimate, as growth was revised up from -3.8% to –3.6% in the first quarter.
The single currency was then able to maintain this upward trajectory against Sterling for most of the remainder of the week, with the Euro proving less exposed to the downturn in investor confidence.
UK Data and BoE In the Spotlight
Looking ahead to next week, it looks like it’s going to be a busy session for GBP investors with a slew of high impact UK data releases and the Bank of England’s latest policy meeting.
On the data front we have the UK’s latest employment, inflation and retail sales figures, with the Pound likely to face some headwinds if they show UK economic activity remained well below the long-term average in May.
In terms of the BoE, the spotlight will be on the bank’s take on negative interest rates, with Sterling likely to come under considerable pressure if there is any hint the BoE might be considering lowering rates below zero.
Meanwhile, EUR investors will be focused on the latest ZEW surveys at the start of the week, with the continued improvement of economic sentiment in the Eurozone likely to offer support to the single currency.
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