The GBP/EUR exchange rate trended higher this week, amidst a mostly positive response to the UK’s 2021 Budget.
Pound firms following Budget
The Pound struck higher against the Euro this week, with UK economic optimism helping the GBP/EUR exchange rate to recoup a solid portion of the previous week’s losses.
Driving this optimism was Chancellor Rishi Sunak’s 2021 Budget statement, in which he outlined plans to extend the furlough scheme and provide more support to businesses through the cautious reopening of the UK economy.
While GBP investors were wary over the inclusion of a future hike in corporation tax, the reaction was broadly positive, and ensured Sterling maintained a positive trajectory through the latter half of the week.
Meanwhile, the Euro struggled to find support this week as it was undermined by some lacklustre economic data, as well as its negative correlation with the US Dollar, which enjoyed a bullish run this week.
The Euro suffered a particularly sharp selloff in the latter half of the week following some abysmal retail sales figures from the Eurozone, which revealed sales growth in the bloc plummeted a whopping 5.9% in January.
ECB in the spotlight next week
Turning to next week, the highlight of the session looks to be the European Central Bank’s (ECB) latest policy meeting.
While no policy changes are expected from the ECB this month, the bank’s forward guidance could provide some fresh impetus for the single currency, with a more positive outlook in light of the recent rebound in inflation and vaccine progress potentially lifting the Euro.
Also of note to EUR investors will be Germany’s latest industrial production figures, where an expected rise in factory output in January is likely to lend some support to the Euro at the start of the session.
Meanwhile in the UK, the publication of January’s monthly GDP reading will be watched closely by GBP investors as it will reveal just how big a hit the UK economy took from the latest lockdown. Will a larger-than-expected slump drive the Pound lower?
Another key focus for GBP investors will be on UK coronavirus statistics. Recent data suggests that the rate of decline is slowing, something which could put some pressure on Sterling, as the government’s cautious reopening of the economy hinges on cases continuing to fall.