EUR GBP Below 0.8400 with German Inflation Due

The EURGBP exchange rate was higher by 0.30% after the pound sterling had found strong gains on Tuesday. Traders are scaling back bets on sterling ahead of the latest German inflation figures out today. The euro versus pound sterling was sharply lower yesterday after Boris Johnson again signalled that no new restrictions were imminent.

The EUR to GBP rate was trading at 0.8365 with the 2020 lows near 0.8300 being yesterday’s target.

Plan B restrictions look set to stay in place in UK

UK Prime Minister Boris Johnson has the support of his Cabinet to keep the Plan B restrictions in place ahead of the latest review of regulations before they expire on January 26th, Downing Street said.

No 10 shared details of a Cabinet meeting, where the Prime Minister told his top team the “next few weeks would be very challenging, particularly for the NHS where the number of people going into hospital because of Omicron will increase”.

“The Prime Minister said the UK’s balanced approach, together with new evidence that Omicron is less severe than Delta, meant it was right to maintain the Plan B measures, with a further review before the regulations expire on January 26,” the statement added.

“The Prime Minister said the Government would continue to give the NHS all the support it needs to further manage the pressure it is under.

Boris Johnson said yesterday that the country would look to ride out the current wave of cases without further restrictions and that has boosted the UK’s economic outlook. Scotland has also cut the isolation time for positive cases to seven days.

Traders await German inflation data today

Today will bring German inflation figures with a reading of 5.1% expected versus last month’s 5.2%.

Numbers this week from France and Ireland both stayed steady, with Ireland’s inflation at 3.9%. Inflation in Italy was shown to have risen to the highest rate since August 2008.

ING economist Paolo Pizzoli said:

“Energy prices were the undisputed inflation driver over 2021 and the lagged effects of these mean we shouldn’t expect to see a deceleration in headline inflation before the second quarter of this year.”

Germany already saw some positive numbers this week with the unemployment rate falling to 5.2% but many employers hinted at a return to furloughed workers.

Further data out today also showed that the recovery in Germany had stalled in December. A slightly larger rise in manufacturing output was offset by a decline in services activity caused by the latest wave of virus restrictions.

The services business activity index moved below the 50 mark which to 48.7 in December, from 52.7 in November, which shows that the sector had declined.

Firms in Europe’s largest economy are under pressure to raise their prices, due to the higher energy, staffing, and materials costs. The rate of input price inflation was at the second-fastest level on record.

Today’s inflation figures will show if the German price pressures are stalling.

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