The GBP/EUR exchange rate made some fleeting gains this week, in response to growing hopes for a swift economic recovery in the UK.
Pound rallies on hopes for swift economic recovery
The Pound struck higher against the Euro and the majority of its other peers through the first half of this week, spurred by hopes for a fairly strong rebound in the UK economy this year.
This was underpinned by optimism over the UK’s aggressive vaccination rollout, with over 7 million people having received at least one dose of a vaccine, its hoped that the UK will be in a position to start easing its lockdown before many other countries.
However, the pound relinquished the majority of its gains in the latter half of the week, after Boris Johnson warned that it is ‘too early’ to begin discussing any lifting of lockdown measures.
These losses were then reinforced by the printing of some weaker-than-expected UK PMIs at the end of the session.
Meanwhile, the Euro wobbled at the start of the week as a result of Italian political uncertainty, after the ruling coalition government lost its working majority, but regained its footing through the mid-week amidst a drop in the US Dollar.
The focus for EUR investors then switched to the European Central Bank’s (ECB) latest policy meeting on Thursday.
This infused some volatility into the single currency as the ECB’s optimistic outlook for 2021 was offset by President Christine Lagarde’s warning that the Euro’s currently strength is putting pressure on inflation.
The Euro was able to mount a comeback at the end of week however, in response to some mostly upbeat PMI figures.
Coronavirus to remain in focus
Looking ahead to next week, we are likely to see coronavirus developments continue to drive sentiment in the GBP/EUR exchange rate.
As such we may see the Pound attempt another rally against the Euro, if the UK’s vaccination rollout continues to outpace efforts in the EU.
However, Sterling could face some headwinds with the publication of the UK’s latest jobs figures, as economists forecast it will report that domestic unemployment rose in November.
Meanwhile, there will be a slew of German data releases in the spotlight for EUR investors next week, the most notable of which will be the country’s latest GDP figures.
The preliminary figures for the fourth quarter are expected to report that the Eurozone’s largest economy contracted at the end of 2020, making a double dip recession all but confirmed and likely putting pressure on the Euro.