The GBP/EUR exchange rate fell back this week, as the Pound found itself the victim of its own success amidst some end of month profit taking.
Pound Temporarily Soars on Reopening Optimism
The Pound got off to a strong start this week, with the currency being bolstered by economic optimism, as Boris Johnson unveiled his roadmap of how to exit lockdown in England.
While the plan wasn’t as aggressive as some GBP investors had hoped, Johnson’s promise of all restrictions being lifted by the summer was enough to drive Sterling higher.
These gains were then extended by growing hopes for a strong UK economic rebound this year as well as data showing a stronger-than-expected surge in domestic wage growth in December.
However, after striking an 11-month high, the GBP/EUR exchange rate began to give ground in the second half of the week, as Sterling fell victim to some profit taking in end of month trade, with GBP investors seeking to consolidate their gains following the currency’s recent bullish run.
The Euro, meanwhile, was able to hold its ground against the Pound at the very start of the week, as broad weakness in the US Dollar helped to bolster the appeal of the single currency, as a result of the negative correlation in the pairing.
But this quickly gave way to some modest selling pressure through the mid-week as ongoing concerns over the EU’s slow rollout of coronavirus vaccines took its toll on EUR exchange rates.
The Euro was later able to take advantage of the pullback in the Pound in the latter half of the week, as the single currency was buoyed by a stronger-than-expected reading of economic sentiment in the Eurozone.
UK Budget in the spotlight
Turning to next week’s session there can be no doubt that the main focus will be on the Chancellor Rishi Sunak as he publishes the UK’s 2021 Budget.
Recent reports suggest the Chancellor has opted to defy any substantial tax hikes in March’s Budget and will instead seek to expand the current fiscal support measures in order to support the government’s cautious reopening of the economy.
This is likely to prove positive for the Pound, and could see the GBP/EUR exchange rate resume its upward trajectory, particularly if Sunak extends measures aimed at protecting jobs.
Meanwhile, the spotlight for EUR investors next week will be on the Eurozone’s latest consumer price index.
This could offer some support to the Euro if inflation continued to accelerate in February, but could equally could put some significant pressure on EUR exchange rates if deflation pressures remained.