GBP/EUR Exchange Rate Falls Ahead of Bank of England Speech

Pound to Euro Exchange Rate Dips as Lockdowns Weigh on UK House Prices in January

The Pound to Euro exchange rate fell this morning. The pairing is currently fluctuating around €1.14 ahead of today’s speech from the Bank of England’s (BoE) Governor Andrew Bailey.

The BoE expects the UK economy to contract by around -4% this quarter, but with the speedy rollout of coronavirus vaccines, the bank also expects a recovery in the second half of 2021.

In UK economic data, today saw the release of January’s RICS Housing Price Balance for January, which fell below forecasts from 63% to 50%.

Ian Morton, principal at the estate agents Bradburne & Co in St Andrews in Scotland, commented on the report:

‘Lockdown has deterred sellers from placing their property on the market until restrictions are eased. Purchasers are window shopping during their exercise hour or online with virtual viewings but hesitant to view in person as expected.’

Meanwhile, UK markets are awaiting another announcement from Health Secretary Matt Hancock about furthering the Government’s control over the NHS.  

Any further political uncertainties in UK, however, could drag down market confidence in the Pound and further weaken the GBP/EUR exchange rate.

Euro Rises on US Dollar Weakness

The Euro (EUR) benefited from weakness in its largest competitor – the US Dollar – today, as global market sentiment improves as the US is expected to announce a $1.9 trillion Covid-19 stimulus package.

As a result, demand for the single currency has risen, with Europe’s ramping-up of Covid-19 vaccinations also improving confidence within the Eurozone.  

However, the Eurozone’s largest economy, Germany, is now planning to extend its national lockdown to as late as March 14th.

Consequently, EUR investors are becoming more cautious, as an extended lockdown in the bloc’s powerhouse economy would have severe consequences on economic recovery throughout the Eurozone.

In Eurozone economic news, today saw the publication of the German Whole Sale Price Index, which rose by 2.1% month-on-month.

Anton Boerner, President of the Federation of German Wholesale, Foreign Trade and Services (BGA), however, complained about Germany’s lack of clear plan to reopen its economy in the coming months, saying:

‘We in the wholesale sector need a reliable lead time in order to be able to equip and supply our partners in the catering and hotel industry, as well as canteens.’

As a result, EUR investors are becoming more cautious about the Eurozone’s economy going forward.

Forecast: Could Germany’s Lockdown Extension Weaken the Single Currency?

Pound investors will be awaiting tomorrow’s release of the preliminary UK Gross Domestic Product data for the fourth-quarter. If this shows a significant downturn in the UK’s economy last year, then Sterling would suffer.

Tomorrow will also see the release of the UK’s Manufacturing and Industrial Production data for December. If this provides a glimmer of hope for the nation’s economy going forward, then the GBP/EUR exchange will head higher.

The UK’s rapid rollout of Covid-19 vaccines could lend support to Sterling this week if the number of those receiving the vaccine continue to increase.

Meanwhile, the Euro could fall this week if Germany announces further plans to extend its lockdown.

David Moore

Contact David Moore