Pound Euro Exchange Rate Benefits from Risk-Sentiment, Euro Losses
Despite a lack of solid domestic support for the Pound (GBP) lately, the Pound Euro (GBP/EUR) exchange rate has been climbing higher this week. This is largely due to the market’s overall coronavirus sentiment, as well as some weakness in the Euro (EUR).
Since opening this week at the level of 1.1241, GBP/EUR has been trending with an upside bias. Even with uncertainty weighing on Sterling, it has benefitted from the week’s movement so far.
At the time of writing, GBP/EUR is trending near a high of 1.1330. This is a new January high and the best level for GBP/EUR in over half a year, since April 2020.
Still, the possibility remains that if the Euro strengthens in the coming days, the recently volatile Pound Euro exchange rate could shed gains again.
Pound (GBP) Exchange Rates Gaining on Risk-Sentiment despite Mixed UK Outlook
The Pound is seeing stronger demand since yesterday, despite a lack of impressive domestic developments.
UK data continues to disappoint investors, and Britain’s coronavirus situation remains concerning. The nation’s infection rate remains high, and the death count passed the sobering figure of 100,000.
Still, the Pound is benefitting from market appetite for risk regardless. This is largely due to expectations that the vaccination situation will continue to improve in the coming weeks.
According to Geoffrey Yu, Senior EMEA Market Strategist at BNY Mellon:
‘the general theme of UK doing well with vaccinations is playing a role
It’s FOMC today so the adjustment in Dollar positions may be playing a role as well’
Euro (EUR) Exchange Rates Weighed by Data, ECB Comments
The Euro has taken more of a backseat lately, amid signs that the Eurozone economy is not handling the coronavirus pandemic as well as expected.
German confidence data has been falling short of expectations, and the EU has reportedly been having trouble procuring enough coronavirus vaccinations to meet targets.
On top of this, European Central Bank (ECB) officials continue to warn against the Euro’s strength. ECB Governing Council Member Klass Knot said today:
‘The ECB will act if finance conditions were to worsening due to market stress.
We have the tools to act on Euro strength.’
Signs that the bank could influence markets spooked investors and weighed on the shared currency’s appeal today.
Pound Euro (GBP/EUR) Exchange Rate Outlook Could be Influenced by Central Bank News
More European Central Bank (ECB) officials will hold speeches in the coming days, and the Federal Reserve will hold its January policy decision this evening.
If there are any surprises from the Eurozone and US central banks, they could have an impact on the Pound to Euro exchange rate.
Both currencies are benefitting from the US Dollar’s (USD) weakness this week. If the Federal Reserve is dovish and leads to further USD weakness, EUR may benefit.
On the other hand, if ECB officials continue to warn against the Euro’s strength, these factors could instead continue to benefit the Pound.
Amid a lack of notable UK data due through the end of the week, the Pound will be driven more by rival strength.
Any surprising developments in the global coronavirus pandemic or Britain’s vaccination schemes will also likely influence the Pound Euro (GBP/EUR) exchange rate.