The Pound Euro (GBP/EUR) exchange rate bounced back from a two-week low this week, as GBP investors seized on some hawkish remarkets from a Bank of England (BoE) policymaker.
Pound rallies on BoE rate speculation
The Pound got off to a poor start this week, initially falling victim to domestic coronavirus concerns as well as renewed Brexit friction between the UK and EU regarding the Northern Ireland protocol.
Sterling remained dejected through much of the session, with the GBP/EUR exchange rate even striking its worst levels since mid-May as the currency continued to be undermined by concerns over a rise in domestic coronavirus cases.
However the Pound then rallied in the second half of the week after Bank of England (BoE) policymaker Gertjan Vlieghe hinted the bank could start hiking interest rates from early 2022, so long as unemployment doesn’t shoot up once the furlough scheme ends.
The Euro, meanwhile, was able to take full advantage of the Pound’s weakness at the start of this week’s session as it was buoyed by the Eurozone’s improving economic prospects as well as a data showing German business morale soared to a two-year high in May.
However the single currency struggled to hold on to these gains in the latter half of the week, with a rebound in the US Dollar, fears the Indian variant of the coronavirus could find its way to the continent and some dovish comments from a European Central Bank (ECB) policymaker taking their toll on the single currency.
Eurozone inflation in the Spotlight
Turning to next week, a key catalyst of movement in the Pound Euro exchange rate in the first half of the session looks to be the publication of the Eurozone’s consumer price index.
Economists are forecasting that inflation in the bloc accelerated again in May, potentially providing a boost to the single currency, in spite of it being unlikely to alter the European Central Bank’s (ECB) outlook on monetary policy.
Also influencing EUR exchange rates will be the release of the Eurozone’s latest retail sales figures, in which an expected slowing of sales growth in April could weigh on the Euro.
Meanwhile, GBP investors will be keeping an eye out for the UK’s latest PMI releases next week.
This month’s finalised figures could see Sterling strengthen, if activity in the all-important service sector is revised higher following the opening up of more of the UK economy in mid-May.
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