The GBP/EUR exchange rate, traded in a wide range over the past week, amidst reports the European Central Bank (ECB) is concerned by the strength of the Euro.
Euro Fluctuates as ECB Uncomfortable With EUR Exchange Rates
The Euro struggled through the first half of this week in response to some lacklustre EUR data releases.
EUR investors were particularly dismayed by the Eurozone’s consumer price index as it revealed the bloc unexpectedly slipped into a state of deflation last month.
Adding to the Euro’s woes were reports that the ECB is concerned over EUR exchange rates, fearing the strength of the single currency could hinder the Eurozone’s recovery.
However the Euro was still able to mount a comeback against the Pound in the latter half of the week, despite some lacklustre Eurozone retail sales figures.
The Pound, meanwhile, tracked higher through the first half of the week.
After some initial weakness due to thin trading conditions on the bank holiday Monday, GBP was strengthened by the improving market mood, as well as a robust manufacturing PMI.
But Sterling sentiment began to sour as the week went on, facing some pressure due to lingering Brexit jitters and some dovish commentary from the Bank of England (BoE).
These losses where then compounded by a weaker-than-expected services PMI and concerns over the accelerating pace of job cuts in the UK.
ECB to Signal More Stimulus on the Way?
Turning to next week’s session, the spotlight will undoubtedly be on the European Central Bank’s latest policy meeting.
No policy changes are expected from the ECB this month, but economists predict President Christine Lagarde could signal that more stimulus is on the way.
Lagarde may also touch on the strength of EUR exchange rates, potentially taking the opportunity to talk down the Euro.
Meanwhile, the focus for GBP investors will likely be on the latest round of Brexit talks.
There is a clear risk of the Pound weakening next week if talks remain deadlocked, as GBP investors grow increasingly nervous that the UK is headed toward a no-deal Brexit, at the same time that it is dealing with the economic fallout from the coronavirus pandemic.
Also likely to influence Sterling sentiment next week will be the publication of the UK’s latest monthly GDP release. Potentially lending some support to GBP exchange rates if the UK continued to show robust growth in July.
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