The GBP/EUR exchange rate has traded in a wide range again this week as Brexit and coronavirus uncertainty drove movement in the pairing.
Pound’s Rocked by Brexit Uncertainty
The Pound initially got off to a strong start this week, firming after Boris Johnson outlined a new tier based coronavirus restriction system, with GBP investors relived that most areas avoided the highest tier and by the PM’s reassurance the UK will not face a second lockdown.
This gave way to some volatility in mid-week trade, with Sterling sentiment being knocked by Brexit jitters and a larger-than-expected rise in domestic unemployment, before GBP/EUR rallied to a one-month higher after the UK signalled its Brexit deadline was not quite as concrete as it had previously suggested.
These swings continued into the latter half of the week as the Pound fell back again after London and several other areas in England were placed into a higher tier of coronavirus restrictions, before rebounding at the very end of the session following reports Johnson will allow trade talks to continue through to the end of October.
Meanwhile, Europe’s coronavirus woes took a significant toll on the Euro this week, as the introduction of further restrictions throughout the Eurozone stoked concerns over the bloc’s already fragile recovery.
Surging Coronavirus Cases to Dominate Sentiment
Turning to next week, with cases continuing to spike across Europe and the UK, it looks safe to assume that coronavirus developments will act as a major catalyst of movement in the Pound to Euro exchange rate.
Expect the announcement of even stricter coronavirus restrictions in parts of Europe to further dent the appeal of the Euro, while talk of a short ‘circuit breaker’ lockdown in the UK looks set to weigh on Sterling sentiment.
With the economic impact of these coronavirus restrictions are the forefront of investors’ concerns, a significant focus will be placed on October’s preliminary PMI releases from the UK and EU.
While an expected slowing of growth in the UK’s private sector is likely to negatively impact the Pound, the Euro could face an even sharper drop off amidst expectations economic activity in the Eurozone will have actually contracted this month.