The Pound to Euro exchange rate trended higher this week, mostly as a result of the Bank of England’s (BoE) surprise interest rate hike.
Sterling bolstered by surprise rate hike
The Pound got off to a shaky start this week, with the GBP/EUR exchange rate fluctuating in response to Omicron uncertainty in the UK.
While GBP investors welcomed Boris Johnson’s ambitious plan to offer a booster jab to every adult in England before the end of the year, a record rise in confirmed infections stoked fears that the government may need to impose stricter restrictions in the near-term.
Sterling then began to find its feet with the release of some strong employment and inflation figures from the UK, as they were seen as putting more pressure on the Bank of England to start tightening its monetary policy.
Despite this most GBP investors had already priced out the possibility of a December rate hike from the BoE, which triggered a sharp spike in the Pound on Thursday as the BoE shocked markets by raising interest rates for the first time in three years.
While the GBP/EUR exchange rate quickly relinquished a good portion of these gains, it still allowed the pairing to close the week higher.
Meanwhile, the Euro traded in a wide range through the start of the week due to its trading relationship with the US Dollar as the latter fluctuated ahead of the Federal Reserve’s rate decision.
The single currency then rebounded from a three-week low against the Pound, following the European Central Bank’s (ECB) final policy decision of the year, as EUR investors appeared content with the banks confirmation its pandemic-era stimulus would be wound up in March.
Omicron headlines to dictate movement in GBP/EUR?
Looking ahead to next week’s session, a lull in high-impact data releases ahead of the Christmas holidays is likely to see Omicron headlines act as the main catalyst of movement in the GBP/EUR exchange rate.
This could see the Pound struggle next week if new cases continue to rise at an alarming rate as it will no doubt stoke speculation of stricter restrictions in the New Year.
At the same time, EUR investors will be keeping a close eye on developments in Europe. While the continent has so far managed to avoid an explosion of cases like the UK, it may only be a matter of time.
If you’ve got a GBP/EUR currency transfer to arrange, the team at TorFX are on hand to help. Get started now to access bank-beating exchange rates and fast, free transfers.
