The Pound to Euro exchange rate struck a new 22-month high this week after the UK government made it clear that it has no plans to introduce new Covid restrictions in England. 

Pound firms as England to ‘ride out’ Omicron Wave 

The Pound rallied against the Euro this week, with the pairing coming within touching distance of €1.20 for the first time since February 2020. 

The continued uptick in the GBP/EUR exchange rate came as the UK government confirmed that there are no immediate plans to impose new Covid restrictions in England. 

In a press conference on Tuesday, Boris Johnson insisted England can ‘ride out’ the current wave of inflections ‘without shutting down our country once again’. 

However, Sterling then faltered in mid-week trade as the continue rise in new infections as well as warnings from health experts about pressures on the NHS, raised some doubts over Johnson’s plan. 

The Euro, meanwhile, got off to a poor start this week as the single currency’s strong negative correlation with the US dollar left it vulnerable as the latter strengthened. 

Tempering these losses was the publication of some positive German economic releases throughout the week, with the country’s latest retail sales and factory orders figures beating expectations. 

The Euro then drew some support from the release of the latest Eurozone CPI figures at the end of the week as another acceleration of inflation appeared to undermined the European Central Bank’s (ECB) stance that the recent spike is transitory. 

German GDP in the spotlight 

Looking ahead, the publication of Germany’s 2021 GDP report will be a key focus for EUR investors next week. 

Markets will be eager to see just how much the emergence of Omicron and the resulting restrictions impacted the Eurozone’s largest economy at the end of the year, with the Euro potentially stumbling if growth misses expectations. 

At the same time, the UK will publish its own GDP figures at the end of next week, with November’s monthly release possibly lending some support to the Pound if it reports an expansion of economic growth. 

Elsewhere we are likely to see the GBP/EUR exchange rate remain sensitive to Covid developments, with GBP and EUR investors looking for any signs that local cases may have peaked. 

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