The Pound to Euro (GBP/EUR) exchange rate traded in a wide range over the past week, as the Bank of England (BoE) struck a more optimistic tone following its latest policy meeting.
Pound Spikes on BoE’s Sanguine Economic Forecasts
The Pound stumbled through the first half of this week. Retreating back below €1.11 against the Euro amid talk of a London lockdown, as well as fears that souring international relations could limit the UK’s post-Brexit trade opportunities.
Sterling then rallied sharply on Thursday in the wake of the BoE’s latest rate decision.
This saw policymakers vote unanimously to leave rates on hold, and revise its growth forecast for 2020 up from –14% to –9.5%.
However, the Pound failed to sustain these gains, with GBP subsequently retreating at the end of the session after Chancellor Rishi Sunak, downplayed hopes for a furlough extension.
Trade in the Euro was also mixed this week, with the single currency getting off to a slow start as the Eurozone’s latest GDP figures continued to exert pressure.
The mid-week saw the Euro begin to find its stride, rallying on the back of positive PMI and retail sales figures, which bolstered hopes for a V-shaped recovery in the Eurozone this year.
These gains would prove short lived however, with the single currency trending lower again in the latter half of the week amidst pressure from a stronger US Dollar.
Sharp Fall in UK GDP to Weigh Heavily on Sterling
Looking ahead to next week’s trading session, the main catalyst in the GBP/EUR exchange rate looks to be the UK’s latest GDP estimate.
Wednesday’s release looks set to put some significant pressure on the Pound amidst forecasts the UK’s economy will have contracted a startling 20% in the second quarter.
Applying additional pressure to Sterling may be the UK’s jobs report, which is expected to show unemployment continued to rise in June while wage growth eroded further.
Meanwhile, the focus for EUR investors at the start of next week will be on the latest ZEW economic surveys, with a potential deterioration of sentiment in August likely weighing on the Euro.
Markets will also be keeping a close eye on the Eurozone’s own Q2 GDP release next week, with the second estimate potentially lifting the single currency if growth is revised higher.
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