GBP/EUR exchange rate strengthens as Eurozone suffers double-dip recession

The Pound Euro (GBP/EUR) exchange rate trended higher this week as EUR exchange rates were pressured by another contraction of Eurozone GDP at the start of 2021. 

Euro knocked by GDP contraction 

The Euro got off to a poor start this week, following a weaker-than-expected business confidence reading from Germany. 

The single currency was able to claw back a portion of these losses in mid-week trade however, as EUR investors welcomed some upbeat comments from European Central Bank (ECB) President Christine Lagarde, in which she suggested the Eurozone ‘could see a robust economic rebound in the second half of the year.’ 

Closing out the week was the publication of the Eurozone’s latest GDP figures. While these revealed a smaller-than-expected contraction of growth in the first quarter of 2021, it still confirmed the bloc slipped into a double-dip recession over the winter, limiting the appeal of the Euro. 

Meanwhile, Pound made steady gains through the first half of this week, initially rising amidst UK economic optimism and hopes that the UK’s recovery this year could be stronger than first thought. 

These gains were then reinforced by the publication of the Confederation of British Industry’s (CBI) latest distributive trade index, as April’s index saw retailers report their sharpest upturn in sales volumes since 2018. 

However, Sterling then began to relinquish some ground in the latter half of the week, following news that the UK’s Electoral Commission is launching a formal investigation into how Boris Johnson funded the refurbishment of his Downing Street flat, amidst concerns this could hurt the Conservatives in the upcoming local elections. 

Upbeat BoE outlook to bolster the Pound? 

Looking ahead to next week’s session, the Bank of England’s (BoE) latest rate decision is likely to act as a key catalyst for the Pound Euro exchange rate.  

The BoE isn’t expected to make any changes to its monetary policy next week. However, with recent data indicating that a boom in consumer spending is helping to fuel a sharp economic recovery, the BoE may significantly upgrade its annual growth forecast. Bolstering Sterling sentiment in the process. 

On the other hand, GBP exchange rates could also be infused with some volatility next week as political uncertainty is likely to be heighted ahead of the Scottish Parliamentary elections on 6 May. 

Meanwhile the focus for EUR investors is likely to be on the Eurozone’s latest retail sales figures and German industrial data. Will some upbeat industrial activity be enough to offset an expected slowing of sales growth last month? 

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