The Pound Euro (GBP/EUR) exchange rate traded in a wide range this week in response to renewed Brexit jitters and a dovish European Central Bank (ECB).
Euro tumbles as ECB maintains massive stimulus programme
The Euro steadily strengthened through the first half of this week, with an upwardly revised first quarter GDP reading from the Eurozone, helping to offset some weaker-than-expected German economic data.
This upside in the single currency was supported by the reopening of more of the Eurozone, with EUR investors particularly cheered by lifting of more restrictions in France.
However, the Euro then faced a sharp shock in the tail end of the session as the ECB concluded its latest policy meeting.
While the bank’s decision to leave its monetary policy untouched was of little surprise to EUR investors, they were nonetheless disappointed by President Christine Lagarde’s comments suggesting it is still too early for the ECB to start discussing its exit from its PEPP programme.
Meanwhile, the Pound found itself on the defensive from the get go this week, following comments made by Health Secretary Matt Hancock, in which he suggested the government is ‘open’ to delaying the next stage of lockdown easing.
However, the main source of Sterling’s losses were disastrous talks between the UK and EU regarding the Northern Ireland protocol, which resulted in European Commission Vice-President Maroš Šefčovič threatening to act ‘swiftly, firmly and resolutely’ if the UK does not abide by its ‘international law obligations’.
Reopening delay to weigh heavily on Sterling
Turning to next week’s session, it seems safe to assume that the main catalyst of movement in the Pound Euro exchange rate will be Boris Johnson’s announcement of whether or not the 21 June reopening will go ahead.
At this time, with cases of the more infectious Delta variant rising rapidly, the assumption is that the government will need to delay the reopening date. An outcome which is likely to exert pressure on Sterling, particularly if the government feels it may need to reintroduce some restrictions in order to keep things under control.
Elsewhere we could also see GBP exchange rates influenced by a number of high-impact UK data releases, with the latest jobs report and inflation reading potentially helping to counteract any drop in the Pound, if they indicate that the UK economic recovery continues to gather pace.
Meanwhile, the focus for EUR investors next week looks to be the Eurozone’s consumer price index, with the single currency potentially strengthening if May’s finalised inflation figures are revised higher.