EURGBP Inches Higher Ahead of Inflation Release

The EURGBP exchange rate was higher on Thursday as the market awaits inflation data from the Eurozone. The Bank of England Governor warned of economic constraints from Brexit but said the jobs exodus was less substantial than was expected. The UK reported a further 1,040 fatalities from coronavirus, which was the highest daily count since April.

Euro versus sterling was trading 0.12% higher on Thursday, trading at a rate of 0.9065.

Eurozone Inflation Could Set the ECB Path for the Year

Eurozone inflation is released this morning with the market anticipating a reading of 0.2%. This would be unchanged from the previous month and the reading could set the European Central Bank’s intentions for the year ahead.

The European Central Bank (ECB) was critical of euro strength at the tail end of last year after the single currency took advantage of US dollar weakness. The euro was seen as the driver of the deflationary mood and officials talked of currency intervention. If inflation stays stuck at current levels, then the bank may take action this year to take some steam out of the euro.

Yesterday’s data was lacklustre with German, UK and Eurozone Purchasing Manager’s Index (PMIs) all coming in lower-than-expected. UK PMIs just held onto the key 50 level, while the EU number was still in contraction with a reading of 49.1. German inflation was also released yesterday with the number coming in at -0.3%. With the ongoing lockdowns in the country, this number will stay under pressure and will add to the ECB’s problems.

No Respite From Virus Cases as Lockdowns Persist

Bank of England Governor Andrew Bailey answered MPs questions yesterday and said that job losses in the financial sector from Brexit were less than anticipated. Between 5-7k jobs have been lost but Bailey said this was less than feared:

“It’s substantially less, I should say, than the sorts of numbers that were being talked about after the referendum.”

The Governor also commented on Brexit, saying that economic pressures could come from the EU exit. Markets have been solid in the past few weeks as the transition period came to an end, but Bailey said that this was largely down to markets “broadly expecting what they got” with the trade deal.

He added that a trade deal with the European Union could end up costing the UK economy more than £80 billion pounds, but these figures mean less as the country continues to be being locked down, leading to economic destruction. The UK reported its highest daily virus count since April but the same situation exists in Germany and this is seeing EURGBP unable to find a clear trend.

Resistance for the EURGBP is at 0.9100 and the 0.9175 level was a key pivot from the summer of 2020. Get in touch to discuss these factors further, I’ll be happy to response personally.

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