GBP/EUR Exchange Rate as BoE Takes Stance of ‘Cautionary Realism’ on UK Economy
The Pound to Euro (GBP/EUR) exchange rate held steady today as daily Covid-19 rates continue to fall in the UK, with cases currently at 5,766, down by -625 compared to last week. The pairing is currently fluctuating around €1.16.
With UK hospitalisations also down by -3,362 compared to last week, GBP investors are becoming increasingly confident about the cautious reopening of the economy in the next few months.
However, today saw little in the way of UK economic data, leaving the GBP/EUR exchange rate rangebound.
This week saw the Bank of England’s (BoE) Governor, Andrew Bailey, warn that the UK economy would never return to a pre-Covid pattern.
A YouGov poll also showed that consumer confidence was at its highest level since the beginning of the pandemic, but Bailey warned:
‘If I had to summarise the diagnosis, it’s positive but with large doses of cautionary realism.’
As a result, GBP investors are remaining somewhat cautious, especially after key scientific and medical advisers warned against any modifications to the Government’s current plan to ease lockdown measures over the coming months.
Euro (EUR) Steady as French Industrial Output Fails to Uplift Confidence in the Eurozone
The Euro (EUR) struggled to gain against the Pound today following the release of January’s French Industrial Output data. Although the figure rose by 3.3% confidence in the Eurozone’s economy remains markedly low.
The European Union’s (EU) lag in rolling out Covid-19 vaccines has also dragged on confidence in the bloc’s economy.
As a result, EUR investors are becoming concerned that the Eurozone could be headed for a double-dip recession.
Marcel Klok, senior economist at ING, commented:
‘With lockdowns extended into the new year, it really feels like it is darkest before dawn in the Eurozone. In the first quarter, GDP is all but certain to contract again and the question is now by how much.’
‘The combination of lockdowns and vaccinations will allow for more substantial reopening of economies over the course of the second quarter. This will then also mark the start of the recovery of the eurozone economy.’
Yesterday also saw the release of the Eurozone’s latest GDP estimate for the last quarter of 2020. The figure was revised down from -0.6% to 0.7%.
Consequently, the EUR/GBP exchange rate is rangebound today with concerns for the bloc’s economy weighing on demand for the single currency.
GBP/EUR Exchange Rate Forecast: ECB Interest Rate Decision in Focus
Euro (EUR) traders are awaiting tomorrow’s interest rate decision rom the European Central Bank (ECB), which is expected to remain at 0%.
However, any dovish comments about the outlook for the Eurozone’s economy in the months ahead would prove EUR-negative.
Pound (GBP) investors will be awaiting tomorrow’s release of the RICS Housing Price Balance for February. Any improvement in the outlook for the UK economy would boost Sterling.
The GBP/EUR exchange rate will continue to be driven by Covid-19 news and speculation over the economy for the months ahead.
As a result, we could see Sterling begin to head higher as the outlook for the UK economy in the coming months is notably more upbeat than the Eurozone’s.