EUR GBP Bounces from Yearly Lows with UK Virus Rates

The EUR GBP exchange rate was higher on Monday after the pound sterling struggled with rising coronavirus case rates over the weekend. The UK saw cases above 45,000 last week and although Downing Street has ruled out a return to restrictions, their “winter plan B” is still a risk. Meanwhile, Rabobank bucked the recent expectations for an imminent rate rise and gave their three-month projection for the EUR v GBP.

The EUR to GBP has important resistance at 0.8475 after setting new yearly lows last week.

Bailey talks Bank of England rate rise, LIBOR rate surges

Bank of England governor Andrew Bailey talked again at the weekend about a rate rise and the LIBOR rate surged as traders brought forward rate hike expectations.

On Sunday, Bailey said inflation “will last longer and it will of course get into the annual numbers for longer as a consequence. That raises for central banks the fear and concern of embedded expectations. That’s why we, at the Bank of England have signalled, and this is another signal, that we will have to act. But of course, that action comes in our monetary policy meetings.”

A Friday report from Goldman also predicted that the BOE would likely raise rates in November, which added to the yield market adjustment.

“While we view it as a close call between a November and December lift-off, we think the November meeting is slightly more likely given it comes with a press conference and updated projections within the Monetary Policy Report,” Goldman Sachs wrote.

The investment bank also said that they see 3 rate hikes at alternate MPC meetings, taking BOE’s benchmark rate to 0.75% by May, and 1% by the end of next year.

As a result, yield markets saw the biggest one-day move since 2010, while 3-month sterling LIBOR rates soared by 7.9bps, the biggest one-day surge since the Lehman Brothers crisis.

The pound sterling has rallied on these expectations in recent weeks but has pulled back on Monday with a rise in virus rates to three-month highs.

Rabobank differs on rates, sees growth headwinds for UK

“Fears around the medium-term outlook for the UK economy could hinder the prospects for the pound next year and beyond.”

“Tensions with French fishermen and disagreements about the Northern Ireland protocol have brought warnings of a trade war between the UK and the EU. Neither had had a significant impact on the pound to date. That said, this is a risk that the differences between the UK and the EU won’t be resolved easily and, on the margin, this news-flow provides an additional disincentive to GBP investors.”

“We are not expecting the BoE to raise rates in the coming months and see scope for GBP to edge lower on disappointment.”

“We are forecasting EUR/GBP at 0.85 on a three-month view. We expect USD strength to push cable back to the 1.36 area on a three-month view.”

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