GBP/EUR Exchange Rate Surges to Three-Week High as UK Unveils New Stimulus

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The Pound to Euro (GBP/EUR) exchange rate trended higher over the past week, with the pairing appreciating roughly half a cent as investors struck a bullish tone regarding Sterling.

Pound Buoyed by UK’s New Stimulus Package

The Pound initially stumbled this week, slipping in opening trade in spite of the UK record its best construction PMI in two-years.

It didn’t take Sterling long to bounce back however, with a drop in the Euro and optimism ahead of Chancellor Rishi Sunak’s summer statement propelling GBP/EUR sharply higher on Tuesday.

Sunak’s mini-budget offered further support to Sterling in the mid-week, as the Chancellor announced a number of stimulus measures aimed at protecting and creating jobs.

However, these gains were capped in the latter half of the week by fresh Brexit uncertainty, after EU chief negotiator Michel Barnier warned British companies should expect new barriers when selling their products in the EU after Brexit.

Meanwhile, after initially rising in response to some upbeat data, EUR sentiment quickly soured this week, with the Euro plummeting on Tuesday after the European Commission slashed its Eurozone growth forecast for 2020.

These losses were then extended by concerns over the EU’s €750bn coronavirus recovery fund, as European Council President Charles Michel warned a lot more work needs to be done in order to reach an agreement.

EU Leaders to Discuss EU Fund at Key Summit

Looking ahead to next week, the main catalyst of movement in the GBP/EUR exchange rate, looks to be the first face-to-face EU summit of leaders since the start of the coronavirus crisis.

Next week’s summit will be dominated by the EU’s coronavirus recovery fund, as market look to leaders to finally reach an agreement on how the fund will be distributed.

EUR investors won’t be the only ones watching closely either as the European Central Bank (ECB) is expected to stay pat at next week’s policy meeting as it waits for EU leaders to make a decision regarding its fiscal stimulus package.

In the UK there will be a slew of economic releases to keep GBP investors busy, with the most influential likely to be May’s GDP release.

On top of this there is also likely to be more Brexit driven volatility as trade talks continue in Brussels.

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