The Pound to Euro exchange rate trended broadly higher through most of this week, briefly hitting a new 23-month high before tripping over the finish line.

Pound bolstered by lifting of Covid restrictions

The Pound initially struggled this week, with the currency being undermined by concerns over slowing wage growth in the UK.

This stoked concerns over an impending cost-of-living crisis, which saw the GBP/EUR exchange rate strike a two-week low on fears it could undermine the UK’s economic recovery.

However Sterling roared back to life in mid-week trade, rallying on the back of some strong domestic inflation figures as well as the announcement from Boris Johnson that nearly all remaining Covid restrictions in England would be lifted from next week.

The GBP/EUR exchange rate then managed to strike a 23-month high on Thursday, before quickly falling back to earth and closing the week on a sour note with the release of some abysmal retail sales figures.

At the same time, the Euro was met by resistance this week as a result of tensions between the EU and Russia as markets grew increasingly fearful of conflict in Ukraine.

Also weighing on the single currency were concerns over the perceived policy divergence between the European Central Bank (ECB) and its peers, as ECB President Christine Lagarde continued to dismiss concerns over inflation in the Eurozone.

The Euro was then able to claw its way higher again in the tail end of the week, as the currency benefitted from a market correction.

UK and Eurozone PMIs in the Spotlight

Turning to next week’s session its likely the primary catalyst of movement in the GBP/EUR exchange rate will be the publication of the latest PMI figures from both the UK and Eurozone.

The former could see the Pound bolstered at the start of next week, amidst hopes that easing Omicron concerns will have bolstered consumer confidence and lead to an uptick in activity in the UK’s private sector.

Meanwhile, the Euro could stumble at the start of the session if the Eurozone’s latest PMI releases report economic growth in the bloc remained suppressed amidst Europe’s ongoing surge in Covid cases.

Also influencing EUR exchange rates will be the publication of Germany’s latest IFO business climate index. Will an improvement in business sentiment this month reflect positively on the Euro?

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