The Pound Euro (GBP/EUR) exchange rate ticked higher through the first half of this week, before facing a major setback following the Bank of England’s (BoE) latest rate decision.
Pound undermined by dovish BoE
The Pound initially got off to a strong start this week, bolstered by some UK economic optimism, after the latest UK PMI figures printed above expectations.
This uptrend in the GBP/EUR exchange rate carried through the middle of the week after Nicola Sturgeon dismisses claims her Scottish National Party could seek to hold an illegal independence referendum, if it secured a majority in Scotland’s parliamentary elections.
However, Sterling the crumbled in the second half of the week, following the BoE’s latest rate decision.
While the BoE’s upgrading of its growth forecast was welcomed by GBP investors, they were left dismayed that the bank’s taping of its weekly bond purchases did not ultimately alter the scope of its stimulus programme.
Meanwhile, the Euro stumbled out of the gates this week, with the currency being undermined by its negative correlation with the US Dollar, as well as lingering concerns after the Eurozone was confirmed to have slipped into a double-dip recession over the in winter.
The single currency mounted a convincing comeback in the latter half of the week however, as EUR investors cheered the publication of some upbeat industrial data from Germany, as well as a stronger-than-expected retail sales print from the Eurozone.
UK GDP in the spotlight
Looking ahead, the publication of the UK’s latest GDP figures on Wednesday will be the primary focus for investors next week.
There’s no doubt that the UK economy will have contracted in the first quarter of 2021, following the imposing of a third national lockdown.
However recent data suggests that economic activity may have been more resilient during the latest lockdown, with a smaller-than-expected contraction of growth likely to reflect positively on Sterling.
Also influencing GBP exchange rates will be Boris Johnson’s announcement on whether more of the economy can open up from 17 May, with a go ahead also likely to boost the Pound.
For EUR investors the spotlight next week will be on the latest ZEW surveys, with the Euro likely to face some headwinds if economic sentiment in Germany continued to deteriorate this month.