GBP/EUR volatile amid UK restrictions delay and soaring US Dollar

The Pound Euro (GBP/EUR) exchange rate fluctuated this week amid mixed data releases, the UK’s delayed lockdown lifting, and a surge in the US Dollar (USD). Euro falls on US Federal Reserve policy announcement

The Euro quickly found support at the start of the week with the Eurozone’s industrial production figures printing above expectations.

The upside continued on Tuesday, with the European stock markets posting their eighth day of gains – the longest winning streak in over two years.

However, EUR began sliding as the week went on, with the US Federal Reserve policy decision looming and Eurozone wage growth coming in at 2.2%, less than half the expected 4.6%.

Following the Fed’s announcement of a more hawkish outlook on monetary policy, the single currency slumped as the US Dollar soared.

Strong inflation and construction data on Thursday did little to alleviate the pressure on the Euro.

Meanwhile, the Pound was on the defensive at the opening of this week’s trading session, following reports that the UK would delay lifting the final lockdown restrictions by four weeks amid rising coronavirus cases.

These concerns over the reopening of the UK economy weighed on the Pound, despite a better-than-expected jobs report, which showed another fall in unemployment and a sharp jump in average earnings.

GBP/EUR exchange rates rallied in the second half of the week, with the Pound propelled by impressive inflation data.

However, Sterling was dented today by an unexpected slump in retail sales, which may drag on GBP/EUR as the week comes to a close.

BoE policy decision could boost the Pound

Looking ahead, a number of big data releases could cause movement in the GBP/EUR exchange rate. On Tuesday, the Confederation of British Industry’s order book balance is expected to jump again to +25, which could boost Sterling. Meanwhile, the Euro may be muted as consumer confidence is forecast to remain negative, improving slightly from -5 to -3.

Both the UK and Eurozone flash Markit PMIs for June are out on Wednesday. The UK figures are expected to reveal a small slowing of growth in both services and manufacturing, while the Eurozone’s composite PMI is projected to show a modest increase, which may give the Euro a slight edge over the Pound.

However, the Bank of England’s (BoE) interest rate decision on Thursday could strengthen the Sterling. While the BoE is expected to keep interest rates the same, the UK’s recent inflation figures may lead to a slightly more hawkish stance among policymakers, which could increase GBP demand.

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