Pound to Euro (GBP/EUR) Exchange Rate Dips as UK Enters New Covid-19 Lockdown

GBP/EUR Exchange Rate Falls as Boris Johnson Warns That There are ‘Lots of Caveats’ to Easing Lockdown

The Pound to the Euro (GBP/EUR) dipped this morning, with the pairing currently trading around €1.106.

Sterling fell today as the UK has entered another national Covid-19 lockdown, with tight restrictions set to last for months.

Prime Minister Boris Johnson said that the lifting of the new lockdown is subject to ‘lots of caveats’ after it was revealed that over 1 million people in England have the virus.

Johnson said it was possible that lockdowns could be eased from mid-January, but warned that this was conditional, saying:

‘Provided we don’t learn anything new about the virus that we don’t yet understand, there’s not some new mutation that we haven’t currently bargained for; provided the vaccine rollout goes according to to plan; provided the vaccine is as efficacious as we think it is; but above all, provided that everybody follows the guidance now.’

There have also been reports that the UK coronavirus vaccine rollout could not hit its target pace for a further two weeks.

As a result, GBP investors are becoming more concerned that a delay in the Covid-19 vaccine rollout could hold back Britain’s economic recovery.

In UK economic data, today will see the release of the final Services PMI for December.

Any improvement in the UK’s largest sector could provide some uplift for the GBP/EUR exchange rate.

Today will also see a speech from the Bank of England’s (BoE) Governor Andrew Bailey.

If he is notably downbeat in his assessment of the UK economy, we would see Sterling suffer.

Euro (EUR) Rises Despite ‘Worse May Be Yet to Come’ as Eurozone’s Economy Contracts

The Euro (EUR) rose today despite the Eurozone’s Composite PMI for December falling below consensus to 49.1.

As a result, this has left many single currency traders concerned for the Eurozone’s economy, with the contraction being worse than expected last month due to Europe’s coronavirus lockdowns.

Chris Williamson, the Chief Business Economist at IHS Markit, was downbeat in his assessment, saying:

‘Worse may be yet to come before things get better, especially as the latest survey data were collected before the news of the new – more contagious – strain of the virus. Service sector activity in particular looks likely to remain constrained by severe social distancing in the early months of the new year. The risk of a technical recession, with GDP also falling in the first quarter has therefore risen.’

In other Eurozone data, today will see the release of the flash German Harmonised Index of Consumer Prices for December.

Any further indications that Germany, the Eurozone’s largest economy, could struggle further in the months ahead would prove EUR-negative.

GBP/EUR Forecast: Could a Dimming Outlook for the Eurozone’s Economy Drag Down the Euro This Week?

Pound (GBP) traders will continue to monitor the UK’s coronavirus situation this week.

Any signs that rising Covid-19 cases and a possible delay in vaccine rollouts would drag down Sterling.

In UK economic data, tomorrow will see the release of the UK Construction PMI for December.

If this shows a significant improvement in the UK’s construction sector last month, then we could see Sterling rise.

Euro (EUR) investors will be monitoring tomorrow’s release of November’s Eurozone Retail Sales data. If these fall significantly, however, we would see Euro suffer.

Tomorrow will also see the release of the Eurozone’s flash Consumer Price Index for December.

Any signs that the Eurozone’s economy is getting off to a slow start in 2021 would be EUR-negative.

David Moore

Contact David Moore