GBP/EUR Exchange Rate Falls as UK Lockdown is a ‘Long, Long Way’ off Being Eased
The Pound to Euro exchange rate struggled today, with the pairing currently trading around €1.12.
Sterling suffered today after Matt Hancock, the UK’s Health Secretary, said that the nation’s lockdown was still ‘a long, long way’ from being lifted.
GBP investors are worried that the nation’s lockdown could be extended until Summer.
As a result, UK markets are remaining cautious as the Covid-19 infection rate continues to climb, threatening to overwhelm the NHS.
Pound traders are also concerned about the British economy after the UK’s service sector was hit hard in December by the closure on non-essential retail business, hospitality, and leisure.
Chris Williamson, the chief business economist at IHS Markit, said on Friday:
‘A steep slump in business activity in January puts the locked-down UK economy on course to contract sharply in the first quarter of 2021, meaning a double-dip recession is on the cards.’
Meanwhile, GBP traders are awaiting today’s speech from the Governor of the Bank of England (BoE), Andrew Bailey.
Any downbeat comments about the state of the British economy, however, would further drag down the GBP/EUR exchange rate.
Euro (EUR) Heads Higher Despite Downbeat German Business Climate and Expectations Reports
The Euro rose against the Pound today despite Germany’s latest IFO Business Climate and Expectations for January falling below forecasts.
Expectations for this month fell below consensus from 93 to 91., while business climate expectations dipped to 90.1.
Carsten Brzeski, Global Head of Macro at ING Bank, commented on the report:
‘Today’s Ifo index shows the full impact of the stricter lockdown measures put in place in mid-December, signalling a very weak start to the new year for the German economy.
‘Looking ahead, however, the stricter lockdown since mid-December will clearly leave its mark on the German economy in the first quarter.’
Today will also see Christine Lagarde, the President of the European Central Bank (ECB), deliver a speech.
Any further confirmation that the Eurozone could be heading for a severe economic downturn this year would be EUR-negative.
GBP/EUR Outlook: UK Unemployment Data in Focus
Pound investors will be looking ahead to tomorrow’s release of November’s UK ILO Unemployment Rate report.
If this confirms consensus and shows a rise in British unemployment levels, then we would see Sterling suffer.
Tomorrow will also see the release of the latest UK Average Earnings data.
Any further indications that the UK economy is suffering from the Covid-19 lockdowns would also be GBP-negative.
Meanwhile, EUR traders will be monitoring the Eurozone’s Covid-19 situation.
If infection rates continue to grow in key economies like France and Germany, then we would see the EUR/GBP exchange rate begin to fall.