EUR GBP Shrugs off Latest UK Employment Data

The EUR GBP exchange rate was slightly higher after the release of UK employment data that showed the country had added a record number of payrolled staff. However, the IMF has advised the country to reconsider furlough if there is a further outbreak of the virus variant. The UK government votes on the Plan B restrictions today, while traders await tomorrow’s Bank of England and ECB interest rate meetings.

The EUR v GBP was trading at 0.8537 with the 0.8500 level being key support.

IMF talks UK stimulus and furlough scheme

The head of the International Monetary Fund said the Bank of England had shown “sound judgment” in navigating the economy but now faced a complex task in removing its huge stimulus programs.

“The Bank of England needs to calibrate the response taking into account both pressures coming from inflation and the necessity to make sure that there is no cold water thrown on growth,” Kristalina Georgieva said as she presented the group’s annual report on Britain’s economy.

“It would be important to avoid inaction bias, in view of costs associated with containing second-round impacts. Careful communication would be needed to lay the groundwork with markets for potentially more frequent policy moves,” she added.

The IMF also warned against an ‘inaction bias’ in raising interest rates as it predicted inflation in Britain was likely to hit a 30-year high of 5.5% next year.

The BoE should also “take the earliest opportunity to put the quantitative tightening program onto a pre-programmed course and for the Bank to give guidance on the framework to be used to manage the process back towards the steady state balance sheet”.

The BoE is set to complete its £895 billion asset purchases this week and plans to stop reinvesting the proceeds of maturing bonds once the base rate hits 0.5%.

BoE playing with fire as it ditches interest rate mortgage rule

The Bank of England has also announced plans to ease mortgage lending rules as it seeks to help thousands of first-time buyers get on the property ladder.

The central bank has said it wanted to remove rules that force borrowers to afford a three-percentage-point rise in rates before they can be approved for a loan.

Scrapping the requirement could help 50,000 people get on the property ladder. The bank obviously has no plans to raise rates by 3% anytime soon and a further 6% of mortgage borrowers, around 35,000 people, would also have been able to secure a bigger loan.

The bank will consult on the change in the first half of next year, but some analysts have warned that they could further fuel a bubble in house prices are a strong two years, despite the pandemic.

The Bank of England and ECB both have interest rate meetings tomorrow and we can expect a quiet day ahead for the pair as traders wait for that event. The euro versus pound sterling has been in a range between 0.8500-8600 and will look for a driver to escape.

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