EUR to GBP Heads for Key Support Level

The EUR to GBP exchange rate was trading lower by 0.20% on Thursday as the pound continues to gain headway on the euro. Sterling is now trading at 0.880 and is only a whisker away from the 0.8870 level which was a key support level in 2020. If the EURGBP can get through this level then it could lead to a new trend of pound strength.

UK Leading the Vaccine Race

The UK seems to be leading the race to deliver vaccines and reopen their economy and there are a reported 21 million vaccines in the country. The government opened seven mass vaccination centres last week and Boris Johnson has talked of allowing 24/7 delivery of vaccines once supply allows.

The EUR to GBP outlook is changing in the last week with the long-supported euro giving up gains to sterling as the country moves forward with its plans. The European Union countries are at risk of falling behind in the vaccination campaign and this highlights the logistical problems of the 27-country bloc.

The large number of vaccines delivered to the UK means that there is enough to meet the government’s target of injecting all over-70s, care home residents and health staff by February 15th.

Policy Minutes Could Pressure the Euro

Today sees the release of meeting minutes on ECB monetary policy and this could put further pressure on the euro. The Bank of England governor said this week that the UK is not looking to increase stimulus measures or move to negative interest rates in the imminent future. This rules out any move in early-December as the bank adopts a “wait and see” approach.

The outlook for the euro to pound exchange rate could rest on the ECB policy moves as the bank seeks to remove a deflationary threat. If the UK can also reopen their economy more quickly then this would increase the likelihood that sterling continues to recover against the euro.

The pound saw little follow-through from the Brexit agreement and is undervalued compared to the time of the referendum, despite both central banks adopting the same policy path of plunging interest rates and massive stimulus.

Germany’s BDI industry group said this week that it expects Europe’s largest economy to grow 3.5% this year after dropping 5% in 2020. This will depend on the country’s ability to break free from lockdowns and the EU is lagging in their approach, with vaccine delivery expected to speed up in early-April.

If the EURGBP closes the month below at the current level or below, then there is the potential for a new pro-sterling trend to develop.

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