The GBP/EUR exchange rate roared higher this week, on the back of a hawkish Bank of England (BoE) as it indicated that negative rates are off the table.
Pound turbocharged as BoE dismisses negative rates
The Pound enjoyed modest support through the first half of this week, as GBP exchange rates continued to benefit from the UK’s success with its vaccination programme.
The majority of Sterling’s gains were focused in the latter half of the week however, as the Bank of England concluded its first policy meeting of 2021.
This saw the BoE leave its monetary policy untouched, while striking an optimistic tone over the UK’s future recovery.
However, the main focus for GBP investors was the BoE’s comments, which appeared to pour cold water on the prospect of negative interest rates during the current cycle of monetary easing.
The Euro, meanwhile, got off to a poor start this week after Germany reported a record fall in domestic retail sales.
This downtrend in the single currency then persisted in mid-week trade despite the Eurozone’s latest inflation and GDP figures printing above expectations, as although the as the latter beat expectations it still confirmed the bloc is facing a double-dip recession.
Also undermined EUR exchange rates throughout the session was the Euro’s negative correlation with the US Dollar (USD), which remained bullish this week, as well as continued concerns over the EU’s slow vaccination rollout.
Plunge in UK GDP to undermine Sterling?
Turning to next week’s session, the spotlight will undoubtedly be on the publication of the UK’s latest GDP figures.
These are highly likely to show that economic growth slumped in the last quarter of 2020 as a result of the second national lockdown in November.
With the UK almost guaranteed to be facing another contraction in growth at the start of 2021 amidst another national lockdown, fears of a double dip recession are likely to result in the Pound weakening.
However, Sterling could still find some support through the first half of the week, so long as the UK’s vaccination programme continues to show results.
Meanwhile, we may see the Euro extend its bearish run through next week’s session, unless there is a substantial improvement in the EU’s vaccination rollout.