The GBP/EUR exchange rate traded in a wide range this week, as US election drama spilled out into the currency market.
Pound Particularly Vulnerable to US Election Chaos
The Pound has been met by considerable volatility this week, mostly as a result of uncertainty surrounding the US election.
After a slow start to the week as investors reacted to the news that England would be going back into lockdown, growing expectations for a clear win for Joe Biden, prompted Sterling to soar on the eve of the US election.
While most currencies gave ground in subsequent trade as it emerged the election would be on a knife edge, the Pound seemed to be particularly vulnerable to the sell-off.
This can likely be attributed to concerns over how a drawn-out presidential election could delay a potential UK-US trade deal.
However, GBP exchange rates then mounted a comeback in the second half of the week, buoyed by the Bank of England’s (BoE) £150bn expansion to its quantitative easing programme.
Meanwhile, after giving ground to the Pound in the first half of the week amidst concerns over Europe’s coronavirus situation, the Euro was able to strike higher in mid-week trade, with the single currency proving more resilient to the US election fallout thanks to slightly stronger-than-expected finalised PMI figures.
The Euro then faltered again in the second half of the week however, with lacklustre German factory orders and Eurozone retail sales releases stoking concern over how Europe’s coronavirus resurgence has impacted consumer demand.
UK GDP In Focus Next Week
Looking ahead, the spotlight next week looks to be on the UK’s latest GDP release.
The preliminary estimate for the third quarter is forecast to show a dramatic return to growth as coronavirus restrictions were lifted and pent-up consumer demand was unleashed.
However, with the UK seemingly headed for another contraction in the fourth quarter as England goes back into lockdown, any upside could prove limited.
Also set to influence GBP exchange rates will be the UK’s latest jobs report, where another rise in unemployment in September may weigh on the Pound.
On top of this, GBP investors will also be keeping any eye out for potential Brexit developments, with the Pound poised to strengthen on any reports of positive progress.
Across the channel the focus at the start of the week will be on the latest ZEW survey’s, with the Euro likely coming under pressure as economic sentiment looks set to crumble in November, in the face of new lockdown measures.
This may set the tone for additional losses for the single currency through the remainder of the week unless coronavirus cases start to come down across the Eurozone.