The Pound has been rallying against the Euro for the majority of this week, taking the pair to almost two-month highs at 1.1275 on Friday’s open.
The pair are currently trending at 1.1246 at the time of writing, with the Pound slightly down on the Euro today.
Pound (GBP) Down despite Beating GDP Forecast
The UK’s economy contracted by 2.6% in November of last year, though the decline is less than economists had forecast at -5.7%.
The contraction does not come as a surprise however, as the UK was thrust into its second national lockdown for the month of November as Covid-19 cases surged during the start of the second wave.
CBI (Confederation of British Industry) Lead Economist Alpesh Paleja spoke on the contraction, saying:
‘As expected, the impact of the second lockdown was significantly smaller than the downturn seen in the spring. Steps taken by businesses earlier in the year to Covid-proof their operations – combined with the time-limited nature of the restrictions, and schools remaining open – meant more companies were able to continue trading safely.’
Looking ahead, the third national lockdown could trigger a more severe contraction for the first quarter of 2021, worrying investors and limiting the Pound.
The current lockdown restrictions are tougher than those implemented in November, and could yet get tougher.
Also today the UK’s ban on flights to and from South America come into force, though it seems it comes a little too late as a leading scientist for the Government has said that one of the two Brazilian variants has already been seen in the UK.
Euro (EUR) Struggles Following ECB’s Policy Meeting
The Euro (EUR) remains muted this morning against the Pound (GBP) despite a contraction in the UK economy.
This comes as minutes from the European Central Bank’s (ECB) December policy meeting published yesterday weigh on the Eurozone’s economic sentiment.
The ECB’s Governing Council were worried that recent, stronger movement in the EUR exchange rate could have a negative impact on the future inflation rate outlook.
The minutes also revealed that members of the ECB’s Governing Council raised concerns over the future of the Eurozone economy, as they don’t expect the economy to return to pre-crisis levels until the middle of 2022.
ECB President Christine Lagarde announced the ECB would be stretching its pandemic emergency purchase programme to €1.85tn and extending the programme until at least March 2022.
Pound to Euro Outlook: Coronavirus Developments could push the Pound higher
Pound (GBP) investors will continue to monitor any coronavirus developments in the coming weeks.
As researchers from the University of Cambridge have found that coronavirus infections are falling in England and some R rates dipping below 1 in some regions, continuing positive news will prove positive for Sterling.
Euro (EUR) traders will also be focused on their own coronavirus developments as German media alleges that Germany’s vaccine rollout is a ‘disaster,’ and lockdown extensions loom over the Eurozone’s largest economy.