The Pound Euro (GBP/EUR) exchange rate traded in a wide range over the past week, as some positive UK data releases clashed with growing concerns over the spread of the Indian coronavirus variant in the UK.
Pound undermined by coronavirus concerns
The Pound opened this week’s session on strong footing, as Sterling sentiment was lifted by the reopening of more of the UK economy on Monday.
The GBP/EUR exchange rate then climbed to a two-week high as traders welcomed a surprise fall in the UK’s unemployment rate in March.
While UK inflation also printed above expectations on Wednesday, by then the pairing had already fallen back from its best levels, as Sterling was undermined by concerns that the spread of the Indian variant of the coronavirus could disrupt the UK government’s roadmap for easing lockdown restrictions.
But the Pound was then able to claw back some ground on Friday, after the UK’s manufacturing PMI printed at a new record high in May.
At the same time, the Euro was supported through much of this week’s session as the EU’s accelerating vaccine rollout and reopening of more countries in the Eurozone, help to bolster growth expectations in the bloc.
However, the single currency then came under some selling pressure at the very end of the week, in spite of the Eurozone’s latest PMI figures also printing above expectations.
All eyes on UK coronavirus developments
Looking ahead, we expected UK coronavirus headlines to act as the primary catalyst of movement in the Pound Euro exchange rate next week.
This comes as next week is seen as crucial in determining whether the threat posed by the Indian variant of the coronavirus is enough to disrupt the government’s plan to move to the next stage of restriction easing on 21 June.
As such Sterling sentiment will be particularly vulnerable to any negative coronavirus headlines, and could fall sharply if cases of the new strain continue to rise rapidly.
Meanwhile, the focus for EUR investors at the start of next week’s session will be on the latest economic releases from Germany, the most notable of which will be the country’s finalised GDP figures for the first quarter.
This could offer support to the Euro if the contraction of growth at the start of the year is revised lower.