The GBP/EUR exchange rate maintained a positive trajectory this week, as the Pound was underpinned by hopes for a strong UK economic rebound in 2021.
Pound turbocharged by economic optimism
The Pound has enjoyed considerable support this week, with the currency being propelled to a new nine-month high against the Euro on the back of growing optimism over the reopening of the UK economy.
This has been underpinned by the UK’s success so far with its vaccination rollout, as well as some encouraging coronavirus statistics highlighting a sharp drop in new cases and hospitalisations in recent days.
Sterling’s upswing accelerated further on Thursday as reports suggested Chancellor Rishi Sunak will defer plans for tax increases in next month’s Budget in favour of more fiscal support for the UK’s economic recovery, further boosting hopes for a strong economic rebound this year.
However the Pound stumbled at the finishing line, coming under pressure on Friday on the back of some abysmal UK retail sales figures, but with its losses tempered by some stronger-than-expected PMI figures.
The Euro, meanwhile, was able to resist pressure from the Pound at the start of the week as the Eurozone’s latest GDP estimate and German economic sentiment index both printed above expectations.
But the single currency’s negative correlation with the US Dollar saw it begin to falter in the face of USD strength through the mid-week. Before recouping some ground again at the end of the week as the Eurozone’s latest PMI figures slightly beat expectations.
Boris Johnson’s lockdown roadmap in spotlight
Looking ahead to next week’s session, the focus for GBP investors will no doubt be on the unveiling of Boris Johnson’s long-awaited roadmap of how and when the government will begin easing England’s national lockdown.
Markets will be hoping that given the UK’s success with its vaccination programme, the government will be able to signal clear plans on when different sectors will be able to start reopening. However, this could lead to some weakness in the Pound if investor feel Johnson’s ‘cautious’ approach to reopening is too slow.
Also influencing Sterling next week will be the UK’s latest jobs report. Will a pick up in wage growth help to offset another rise in unemployment at the end of 2020?
Turning to the Euro, the publication of Germany’s finalised GDP release for the last quarter of 2020 could offer some support to the single currency if it confirms the Eurozone’s largest economy managed to avoid a contraction.