The GBP/EUR exchange rate slumped over the course of the week as markets engaged in a bout of profit taking.
Pound Tumbles on Profit Taking and Vaccine Concerns
Although investors remain optimistic ahead of the next step of the UK government’s planned route out of national lockdown, the Pound slumped this week.
As GBP exchange rates had made strong gains in recent months, this left them vulnerable to selling pressure, with markets seeing little potential for further gains in the near term.
Sterling came under further pressure due to doubts over the AstraZeneca vaccine, which the UK has been reliant upon, and its links to rare blood clots in under 30s. Reports of a shortage of vaccine supply also weighed on GBP sentiment over fears it could delay restrictions easing.
Meanwhile, an upward revision to the finalised Eurozone services PMIs, and data showing that business activity returned to growth in March, helped to shore up the Euro against its rivals.
As the service sector showed signs of recovering some of its lost ground at the end of the first quarter, in spite of fresh Covid-19 restrictions, this improved the appeal of the single currency.
The relative weakness of the US Dollar also helped to push the Euro higher as markets reacted to the falling odds of any future interest rate hikes, giving the GBP/EUR exchange rate a further dent.
Could Positive UK GDP Support Pound Recovery?
The Pound could face further selling pressure in the coming week if February’s set of UK gross domestic product data fails to impress.
Fresh evidence of weakness within the UK economy may leave the GBP/EUR exchange rate biased to the downside, with investors still wary of the possibility of a negative first quarter growth rate.
On the other hand, the positive 0.6% growth forecast in February could help to put a floor under the Pound and limit the potential for further losses in the near term.
The appeal of the Euro, meanwhile, may well improve on the back of April’s ZEW economic sentiment indexes.
Signs of growing confidence within the Eurozone economy could limit market anxiety over the ongoing impact of the Covid-19 crisis, giving investors less incentive to sell out of the Euro for the time being.