GBP/EUR exchange rate rallies from six-week low as ECB signals rates to remain on hold for years to come

The Pound Euro (GBP/EUR) exchange rate traded in a wide range over the past week, but ultimately closed the session modestly higher in the wake of the European Central Bank’s (ECB) latest policy meeting. 

Euro slides following dovish ECB meeting 

The Euro initially surged against the Pound this week, with the single currency able to take advantage of a sharp downturn in Sterling, as a risk-off mood made the Euro more attractive to investors. 

However, after struggling to maintain these gains amidst concerns over Europe’s coronavirus situation the Euro then faltered in the latter half of the week as the ECB delivered its latest rate decision. 

While the bank struck a less dovish-than-expected tone following its July policy meeting, it also signalled that interest rates are likely to remain on hold for an extended period.  

The Pound, meanwhile, got off to an extremely poor start this week, with the GBP/EUR exchange rate plummeting to a six-week low as a worrying surge in UK coronavirus cases overshadowed England’s long-awaited ‘freedom day’. 

A number of health experts questioned the lifting of all remaining restrictions in England, and warned that some might need to be reimposed in the coming weeks as the rapid rise in infections could still overwhelm hospitals. 

However, the selloff may have been a little overdone, with Sterling quickly bouncing back in mid-week trade, before faltering again at the end of the session on some underwhelming PMI releases from the UK. 

Eurozone GDP centre stage 

Looking ahead, it seems safe to assume that the publication of the Eurozone’s latest GDP figures will act as the primary catalyst of movement in the Pound Euro exchange rate next week. 

Economists are predicting a robust rebound in economic growth in the second quarter, which is likely to lend some support to EUR exchange rates towards the end of next week. 

Also influencing the single currency will be the publication of the Eurozone’s consumer price index. Will this report inflation started to accelerate again this month, or will it have remained below the ECB’s new target putting some pressure on the single currency? 

Meanwhile, in the absence of any high-impact GBP data releases next week, its likely we will see domestic coronavirus developments continue to drive Sterling sentiment. This could see the Pound face an uphill battle if new infections continue to surge, raising further questions about sustainability of England’s reopening.  

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