Pound Euro (GBP/EUR) Exchange Rate Extends Downside
(Updated: 15:00, 19/8/21) The Pound Euro (GBP/EUR) exchange rate has extended its downside today, hitting a 17-day low, as rising Covid cases and the fading prospect of a Bank of England (BoE) rate hike weigh on Sterling.
Yesterday’s softer CPI print reduced the odds that the BoE would hike rates earlier than anticipated, and the latest Federal Open Market Committee (FOMC) meeting minutes may have done so too.
In their latest meeting, the FOMC signalled that tapering could begin soon. However they also stressed that tapering did not necessarily lead to earlier rate hikes:
‘it would be important that the Committee clearly reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate’.
With the Fed still seemingly far from raising the federal funds rate, the chances of a BoE rate hike are even slimmer.
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Pound Euro (GBP/EUR) Exchange Rate Slides as UK Covid Cases Rise
The Pound Euro (GBP/EUR) exchange rate has slumped today as UK Covid cases, deaths and hospitalisations continue to creep up.
GBP/EUR bounced off a two-week low of €1.1697 earlier this morning. While the Pound (GBP) is still down against the Euro (EUR) at the time of writing, it is regaining some ground.
Pound (GBP) Dented as Covid Concerns Grow
The Pound began tumbling against the Euro in the early hours of this morning, dropping half a cent from the close of yesterday’s session.
The downside in Sterling comes following the UK’s latest Covid data, which seems to have caused concern among some GBP investors.
The new figures show that, over the last seven days, confirmed cases were up by 14,891 (7.6%), deaths were up by 48 (7.9%) and hospitalisations were up by 232 (4.3%).
In addition, a new study by the University of Oxford and the Office for National Statistics (ONS) published overnight revealed that the Pfizer/BioNTech and AstraZeneca jabs are less effective against the Delta variant.
Importantly, the study found that both vaccines still offered significant protection against serious illness. However, the Pfizer vaccine’s effectiveness diminished in the first 90 days after the second dose.
Moreover, fully vaccinated people infected with the virus carry similar viral loads to unvaccinated people, suggesting that the vaccines are not effective at reducing transmission. In other words, herd immunity may be impossible.
Simon Clarke, associate professor in cellular microbiology at the University of Reading, commented on the findings:
‘We’re seeing here the real-world data of how two vaccines are performing, rather than clinical trial data, and the data sets all show how the delta variant has blunted the effectiveness of both the Pfizer and AstraZeneca jabs’.
Paired with the rising Covid figures, the news has cast doubt on the UK’s progress following ‘Freedom Day’ one month ago, thereby denting GBP.
Euro (EUR) Recovers after FOMC Minutes
The Euro, meanwhile, seems to be recovering from an overnight sell-off as traders digest the full implications of the Federal Open Market Committee’s (FOMC) latest meeting minutes.
In the minutes from their July meeting, the FOMC signalled that the Federal Reserve could begin tapering bond purchases by the end of this year. This initially boosted the US Dollar (USD), thereby weakening the Euro due to the currencies’ negative correlation.
However, the minutes also stressed that tapering wouldn’t necessarily lead to earlier rate hikes. The US Dollar dipped slightly, taking pressure off the Euro and giving it room to rally against a weakening Pound.
Also supporting the single currency is the recent high morale in the Eurozone. The EU’s vaccination programme, though off to a slow start, has rapidly accelerated in recent months, with the bloc expected to overtake the UK in the coming weeks.
Pound Euro Exchange Rate Forecast: Could GBP Recover amid a Cautious Market Mood?
At the time of writing, the Pound Euro pair has bounced off this morning’s lows and seems to be recouping some of its losses. Continued strength in the US Dollar amid a risk-off market mood may keep some pressure on the Euro and help the Pound recover further.
With no more UK or Eurozone data due out today, coronavirus developments could influence both currencies.