The GBP/EUR exchange rate trended higher this week, with the Pound continuing to find support due to the UK’s vaccination success.
Pound bolstered by UK’s ongoing vaccination success
After a fairly muted start to the week, the Pound was propelled higher on Tuesday, on the back of a fairly upbeat jobs report.
A smaller-than-expected increase in the unemployment rate, alongside some impressive wage growth figures were welcomed by GBP investors, and helped propel the GBP/EUR exchange rate up over half a cent.
But Sterling then faced a bump in the road in midweek trade, after Boris Johnson announced Schools would remain shut until at least 8 March, scuppering hopes England’s national lockdown could be eased in February.
However, The Pound quickly recovered as the currency continued to be underpinned by optimism over the UK’s vaccination programme.
Meanwhile, the Euro stumbled out of the starting gate this week, after German business morale slumped to a six-month low in January, pointing to a weak start to 2021 for Europe’s largest economy.
The single currency then gave additional ground amidst some Italian political drama, after Prime Minister Giuseppe Conte’s ‘tactical’ resignation.
EUR exchange rates then began to recoup some ground in the second half of the week after data showed that German inflation roared back to life this month, rocketing up from –0.3% to 1%.
Closing out the week was the publication of Germany’s latest GDP figures, with the Euro catching some fresh bids after investors were pleasantly surprised to see a modest expansion of economic growth in the fourth quarter.
Eurozone GDP in the spotlight
Turning to next week, the highlight in the first half of the session will no doubt be on the Eurozone’s latest GDP release.
This may see some pressure placed on the Euro if the bloc contracted at a faster-than-expected pace at the end of 2020.
Also of note to EUR investors will be the publication of the Eurozone’s consumer price index. Could a surprisingly stronger rebound in inflation this month similar to that seen in Germany offer a pick me up to the single currency?
Acting as the main catalyst in the Pound, meanwhile, will be the Bank of England’s (BoE) first policy meeting in 2021.
Given BoE governor, Andrew Bailey’s recent communication regarding negative interest rates we may see the BoE reiterate its reluctance to adopt unconventional monetary policy measures, potentially boosting GBP exchange rates in the process.
Elsewhere we may see Sterling continue to benefit from the ‘vaccine trade’ so long as the UK’s vaccination programme doesn’t see any setbacks.