The GBP/EUR exchange rate briefly struck a new five-month high this week as news of a possible coronavirus vaccine cheered markets.
Pound Turbocharged by Coronavirus Vaccine News
The Pound enjoyed strong support through the first half of this week, after US pharmaceutical giant Pfizer announced that its experimental coronavirus vaccine has shown 90% effectiveness.
News of a potential vaccine appeared to particularly benefit Sterling, likely on the expectation that as the UK economy was disproportionately hit by the coronavirus pandemic, it stands to gain the most from a vaccine.
Aiding the Pound’s rally was also the publication of some stronger-than-expected wage growth figures.
After striking a five-month high, Sterling’s fortunes began to sour on Wednesday, amid reports the UK and EU would be unable to reach a Brexit trade deal before the mid-November deadline.
This downturn in the Pound then accelerated in the second half of the week, with the GBP/EUR exchange rate tumbling roughly 1% after the UK’s preliminary GDP estimate for the third quarter printed below expectations.
Meanwhile, the Euro tumbled through the first half of the week, as rocketing coronavirus cases throughout Europe weighed heavily on the single currency, with concerns over the virus being reflected in the latest ZEW surveys, which revealed economic sentiment in the Eurozone plunged to a six-month low this month.
However, the Euro was able to claw back the majority of its losses later in the week as vaccine optimism started to offset some of the coronavirus gloom.
Brexit Back in the Driving Seat Next Week
Looking ahead, we expect the focus next week will be back on Brexit, amidst hopes the UK and EU will be able to close the final gaps in trade talks before the next EU summit.
Should the two sides manage to finalise a trade deal in time, it’s safe to assume we will see a strong pick-up in the Pound.
Also set to influence Sterling sentiment next week will be the UK’s latest consumer price index, where an acceleration in domestic inflation could help to bolster the upside potential in the GBP/EUR exchange rate.
For EUR investors the focus is likely to remain on Europe’s battle against the coronavirus, with the single currency likely to face further headwinds if the infection rate continues to surge and more countries are forced to impose lockdown measures.
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