Pound Euro (GBP/EUR) Exchange Rate Holds Near One-Month High
The Pound Euro (GBP/EUR) exchange rate has strengthened around half a cent in thin post-Christmas trade this week, trading around €1.1887 at the time of writing on Wednesday to hold near a one-month high.
Despite soaring Covid-19 cases, the UK government has said it will not introduce tighter coronavirus restrictions before New Year, which has provided Sterling some support.
Meanwhile, several European countries have recorded record high daily Covid infections and France tightened Covid measures, denting EUR sentiment.
Pound (GBP) Supported by Lack of Covid Measures
The Pound (GBP) has firmed in post-Christmas trade while many markets remain closed.
News that the UK government has decided not to impose stricter Covid measures before the new year has provided Sterling with some support.
Health secretary Sajid Javid said there would not be restrictions but that people should ‘remain cautious’.
The announcement has given a boost to the hospitality sector, potentially improving the outlook for UK economic activity at the end of the year.
The UK’s booster vaccination rollout is also a source of optimism, with a high of 968,665 vaccines given in one day last week.
However, Covid-19 infections in England hitting a new record high of 117,093 daily infections threaten to disrupt UK economic activity.
Not only could the surge in cases lead to tighter restrictions in the coming weeks, the number of people having to self-isolate may disrupt economic activity.
The UK government will reassess whether restrictions are needed in the new year, with Environment Secretary George Eustice saying the government will act ‘if we do see a big increase in hospital admissions’.
Fears are also growing over the impact the loss of consumer confidence has had on the hospitality industry and retail over Christmas.
Business leaders have called for increased government support over concerns of more than a 50% drop in trade for pubs and restaurants over Christmas, potentially denting fourth quarter GDP growth and in turn the Pound going into 2022.
Euro (EUR) Dented by Record High Covid-19 Cases in Several Countries
The Euro (EUR) has come under pressure this week after several European countries reported their highest daily Covid-19 case rates during the pandemic.
France, Italy, Greece and Portugal reported record highs, intensifying concerns tighter restrictions will soon be introduced.
Infections in France reached nearly 180,000 in one day on Tuesday, the highest number recorded in one day in Europe.
Following the alarming rise in cases, French Health Minister Olivier Véran warned daily cases may reach 250,000 by the start of January.
Earlier in this week, French Prime Misiter Jean Castex announced stricter Covid measures in an attempt to slow the rise in cases while the country rolls out its booster vaccination programme.
Pound Euro Forecast: GBP/EUR to Hold One-Month High?
In the absence of notable UK and Eurozone data releases until the start of the new year, the Pound Euro exchange rate may hold near one-month highs in end of year trade.
While the UK government has said it will wait until the new year before assessing whether to tighten restrictions, soaring infections and stricter measures in European countries may help the Pound Euro exchange rate to make gains.
However, Brexit jitters may weigh on Sterling sentiment after European Commission Vice President Maroš Šefčovič said UK threats to activate Article 16 of the Northern Ireland protocol are ‘enormously disruptive’ and could cause post-Brexit trade negotiations to collapse.
In addition, worries may grow over disruption to imports into the UK as new UK rules take effect on the 1st January.