The Pound to Euro (GBP/EUR) exchange rate was infused with fresh volatility this week, as economic gloom descended upon the UK.
Pound Undermined as UK Slumps into Deep Recession
The Pound initially struck higher against the Euro this week, as upbeat trade allowed Sterling to capitialise on the single currency’s weakness.
However, the Pound’s rally was cut short with the publication some mixed employment figures from the UK, showing that while the unemployment rate held at 3.9%, wages (excluding bonuses) contracted for the first time since 2001.
Sterling was then forced to give up its gains with the release of the UK’s latest GDP figures on Wednesday.
These revealed the UK economy suffered record contraction of 20.4% in the second quarter, plunging the country into its first recession in over a decade, with Chancellor Rishi Sunak warning the UK faces ‘hard times’ ahead.
Meanwhile, the Euro got off to a poor start this week as EUR investors grew increasingly unnerved by Europe’s apparent coronavirus resurgence.
The single currency made a tentative advance on the back of a positive ZEW economic sentiment index from Germany, but it would take a drop in the US Dollar in the mid-week for the Euro to eventually claw back its losses against the Pound.
UK and Eurozone PMIs in Focus Next Week
Looking ahead to next week’s trading session, the publication of the UK and Eurozone’s latest PMI figures are likely to act as the main catalyst of movement in the GBP/EUR exchange rate.
The UK’s PMI figures could give the Pound another shot in the arm next week, if domestic economic activity continued to accelerate at a robust pace this month.
It’s likely to be a similar situation in the Eurozone as well, with August’s preliminary figures forecast to show a healthy expansion of the private sector, potentially giving rise to a EUR strength.
Apart from the PMI figures, the GBP/EUR exchange rate is also likely to be influenced by the UK’s latest consumer price index, where another acceleration in inflation is likely to reflect well on Sterling.
Meanwhile, another improvement in Eurozone consumer confidence in August could help the Euro to get a leg up on the Pound, in what is likely to be some volatile trade next week.
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