The Pound Euro (GBP/EUR) exchange rate closed this week’s session on the back foot, as the pairing retreated from an 18-month high.
Pound plunges amid softening BoE taper expectations
The Pound initially struck higher against the Euro this week, with the GBP/EUR exchange rate briefly able to strike an 18-month high in the first half of the session.
This upside in the GBP/EUR exchange rate was supported by some coronavirus optimism in the UK as Scotland lifted nearly all remaining legal restrictions and new daily cases continued to trend lower.
However, the Pound then came under some aggressive selling pressure in the second half of the week.
While the UK’s latest GDP figures printed in line with expectations, reporting a solid 4.8% expansion of growth in the second quarter, this failed to offer any meaningful support to the Pound, particularly as GBP investors started to dial back their Bank of England (BoE) tapering expectations.
Meanwhile, the Euro faced some notable headwinds at the start of this week’s session, amidst a sharp deterioration in economic sentiment in Germany.
The single currency also came under pressure in response to broad strength in the US Dollar as a result of the strong negative correlation between the pairing.
Despite a disappointing industrial production print from the Eurozone, the Euro was then able to take advantage of the pullback in the Pound in the latter half of the week, which saw the GBP/EUR pairing shed around half a cent.
Upbeat UK inflation and employment figures to boost Sterling?
Looking ahead, GBP investors will be kept busy with a couple of high impact UK data releases next week, which could also help the to recoup some of the Pound’s recent losses.
First up will be the UK’s latest jobs figures on Tuesday, which is expected to report that the unemployment continued to fall in June as more of the economy opened back up, alongside another strong wage growth reading this could help Sterling get off to a strong start next week.
The subsequent release of the UK’s consumer price index could then reinforce any upside in the Pound, as another acceleration of inflation could revive BoE tapering speculation.
Meanwhile, the focus for EUR investors will be on the Eurozone’s latest GDP estimate. This could lend some modest support to the Euro in the first half of the session if it confirms that the bloc experienced a strong rebound in growth in the second quarter.
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