The Pound to Euro exchange rate struck a new post-pandemic high this week, before promptly retreating as Boris Johnson was mired in a scandal over a lockdown party at No10. 

Pound shaken by questions over Boris Johnson’s future as PM 

The Pound maintained a positive trajectory against the Euro through the first half of this week’s session, which helped propel the GBP/EUR exchange rate above €1.20 for the first time since February 2020. 

This upswing in Sterling was underpinned by expectations the Bank of England (BoE) will hike interest rates again when its monetary policy committee next meets in February. 

However, these gains proved fleeting, with the Pound quickly slipping back amidst concerns Boris Johnson could potentially face a leadership challenge as the PM was met by calls to resign from both sides of the Commons after admitting his role in a lockdown breaking party in May 2020. 

The GBP/EUR was then left to lick its wounds at the end of the week in spite of a stronger-than-expected monthly GDP release, which reported the UK economy returned to pre-pandemic levels in November. 

Meanwhile, the Euro struggled to hold its ground against the Pound at the start of this week as concerns over policy divergence between the European Central Bank (ECB) and its peers sapped the appeal of the single currency. 

However EUR exchange rates were given a leg up in the latter half of the week, as a pullback in the US Dollar bolstered the Euro due to the strong negative correlation in the EUR/USD pairing. 

UK jobs report and inflation release in the spotlight 

Looking ahead to next week’s session, a couple of high-profile UK data releases are likely to act as key catalysts for the Pound to Euro exchange rate. 

First up will be the release of the UK’s latest jobs report, which could buoy Sterling if domestic unemployment continued to fall in November. 

But perhaps the more influential data will be the UK’s consumer price index, with another surge in inflation likely to reinforce expectations for a February rate hike from the Bank of England. 

Meanwhile, the focus for EUR investors will be on the latest ZEW surveys from Germany, where an improvement in economic sentiment this month could provide some support to the Euro in the first half of the week. 

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