The Pound Euro exchange rate was catapulted to a one-month high this week as Eurozone recession fears weighed heavily on the single currency.
Euro sinks as Eurozone recession fears flare
The Euro was met by considerable selling pressure this week, initially stumbling in response to Germany’s latest trade figures, which dealt a blow to Germany’s powerhouse image after reporting the country suffered its first trade deficit in 30 years.
The EUR selloff then intensified in the middle of the week amid Eurozone recession fears, heralded by a sharp increase in European gas prices.
EUR investors have grown increasingly concerned that a cutting off of Russian gas exports to Europe may be imminent, which coupled with soaring energy prices stoked fears that economic activity in the Eurozone could be severely disrupted.
Helping the Euro to limit its losses in the latter half of the week was the publication of the minutes from the European Central Bank’s (ECB) latest policy meeting, as they revealed some policymakers may support a 50bps hike in July.
Meanwhile, movement in the Pound has been dominated by UK political drama, as a turbulent few days culminated in the resignation of Boris Johnson as Prime Minister.
The initial response to Johnson’s resignation saw Sterling firm as it brought an end to weeks of uncertainty over his premiership.
This upside in the Pound was aided by some hawkish comments from Bank of England (BoE) policymaker Catherine Mann.
UK political uncertainty to infuse volatility into Sterling?
Looking ahead, the GBP/EUR exchange rate could face fresh volatility next week as the relief from Johnson’s resignation will no doubt give way to fresh political uncertainty.
GBP investors will no doubt be hoping that the race to find his successor is swift, but a lack of a clear front runner and an increasingly fragmented Conservative party could lead to a damaging leadership battle. While there is also the risk that a more hardcore Brexiteer could emerge as the next PM.
Also, influencing Sterling sentiment will be the publication of the UK’s latest GDP figures. May’s monthly release is expected to report another slump in growth, likely pressuring GBP exchange rates as it sets the stage for the UK economy to contract in the second quarter.
Meanwhile the release of Germany’s ZEW economic sentiment index could drag on the Euro in the first half of the week, if renewed energy fears leads to a slump in investor morale this month.
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