The Pound-Euro Week Ahead: Range Trading after Sterling's Rally Endangers GBP/EUR Downtrend

The Pound-to-Euro exchange rate may have set itself up for a period of range-trading after its strongest weekly performance since March put the multi-month downtrend in danger, with Sterling having declined an invitation to return toward earlier lows. 

The Swedish Krona was the best performing major currency ahead of a surprisingly strong British Pound, and economists at Swedish lender say the Scandinavian currency has more ground to gain.

The British Pound is likely to remain under pressure against the Euro and fail to reach its full potential against the Dollar until at least October, when a post-Brexit trade deal should finally be agreed and unlock a more sustained recovery.

The Pound-to-Euro exchange rate decline appeared to peter out toward the weekend although the coming days could afford Sterling an upward correction if the rise in non-U.S. coronavirus cases is sufficient to compel a rebound in the U.S. Dollar, which hit near-two year lows last week. 

The Pound-to-Euro exchange rate could experience a relief rally in the event that a free trade agreement is reached with the European Union but selling into any such rebound might be the better approach, according to BMO Capital Markets.

The British Pound and Dollar are both weaker against the Euro in mid-week trade with markets cheering the agreement of the EU's recovery deal and budget, which they say could result in further gains for the single currency over coming days and months.

The Euro exchange rate complex was broadly lower on Tuesday in the wake of news EU leaders had agreed a new €1.8TN spending agreement, that includes a €750BN coronavirus rescue package which will largely be funded by the issuance of EU bonds.

The Euro exchange rate complex was higher at the start of the new week, betraying the sense amongst investors that EU leaders were on track to agree a generous support package that would help Europe's economy recover from covid-19 crisis.