Pound Euro (GBP/EUR) Exchange Rate Climbs Further as USD Upside Subdues EUR

Pound Euro (GBP/EUR) Exchange Rate Extends Uptrend on USD Strength

(Updated 17:00, 02/12/2021) The Pound Euro (GBP/EUR) exchange rate continued to firm this afternoon as speeches from Federal Reserve officials struck a hawkish tone, supporting the US Dollar (USD) and thereby denting Euro (EUR) sentiment.

Both Atlanta Fed President Raphael Bostic and Richmond President Thomas Barkin commented upon rising inflationary pressures in the US, with Barkin affirming that he is supportive of normalizing monetary policy as the Fed is doing, and Bostic committing to push for an end to QE tapering sooner rather than later.

Observing the effect of central bank signaling on various currencies, economists at ING forecast a stronger ‘Greenback’ ahead: which, if accurate, suggests further downside for the Euro.

One spokesperson commented:

‘Assuming that Omicron risks play out closer to the benign end of the spectrum, we look for the sharper Fed tightening cycle to return as a theme in early 2022… In a world where the European central bank is late to tighten – or has the biggest cause to pause – dollar gains should largely come at the expense of the low-yielding currencies.’

Original article continues below:

GBP/EUR Exchange Rate Firms on Vaccine Tailwinds

The Pound Euro (GBP/EUR) exchange rate is trading up amidst a fairly upbeat market mood, as vaccines appear to give protection against the new Covid variant. Falling unemployment in the EU has failed to boost the Euro (EUR) so far this morning.

At the time of writing, GBP/EUR is trading at €1.1753, up 0.2% from today’s opening levels.

Pound (GBP) Trades Up despite Omicron Headwinds

The Pound (GBP) is trending up against the majority of its peers as a positive market mood bolsters the currency. The 10-year US Treasury bond yield is up today after yesterday’s fall, indicating strong trading sentiment.

Comments given by Pfizer’s chief executive earlier this week advising people not to worry about vaccine efficacy are being echoed this morning by pharmaceuticals group GlaxoSmithKline (GSK), who have confirmed that a drug they’re working on ‘retained activity against all tested [Covid] variants of concern.’

A lab analysis of the antibody-based Covid-19 therapy being developed by GSK with US partner Vir showed that the drug responded to key mutations of the Omicron strain, with further tests seeking to establish its efficacy against all other mutations.

Despite the good news, uncertainty over the new variant’s virulence continues to limit bullish market activity, capping Sterling gains.

Jim Reid of Deutsche Bank remarks:

‘In terms of developments about Omicron, we’re still in a waiting game for some concrete stats… there [is] further negative news out of South Africa, as the country reported 8,561 infections over the previous day, up from 4,373 cases the day before, and 2,273 the day before that.

All eyes will be on whether this trend continues, and also on what that means for hospitalisation and death rates over the days ahead.’

Euro (EUR) Tumbles Despite Falling Unemployment

The Euro (EUR) is falling against its peers today, extending yesterday’s losses over weaker-than-expected German retail data. Eurozone unemployment fell to 7.3% in October from 7.4% the month previous – a move in the right direction, but insufficient to raise Euro sentiment.

As investors analyse Eurozone employment data, the single currency is subdued, failing to strengthen on vaccine tailwinds. Dovish comments from European Central Bank (ECB) policymakers yesterday may be exerting additional pressure upon the Euro.

According to Reuters, ECB policymakers are concerned that the economic outlook has become too murky for a comprehensive policy decision to be reached in December: policymakers agree that the PEPP should end as scheduled in March, but any decision on recalibrating the Asset Purchase Programme may need to wait.

GBP/EUR Exchange Rate Forecast: Falling EU Unemployment to Boost the Euro?

Looking ahead, additional Eurozone data is likely to direct movement in the Pound Euro exchange rate, given a lack of UK trading stimuli.

Unemployment fell in October as expected, but the change is marginal – fewer people out of work may still buoy EUR, however. External factors may also influence GBP/EUR, such as Covid developments and Brexit negotiations.

Olivia Evershed

Contact Olivia Evershed


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