EURGBP Looks to Inflation to Curb Recent Losses

The EURGBP exchange rate was 0.26% higher on Thursday as the pair looked to curb recent losses. The euro will look to today’s German inflation figures to try and mount a recovery against the pound.

The euro has been under pressure since the new year began as the Brexit deal was signed, and investors removed some of the risk premium from the pair. Sterling has since been gaining on the delivery of vaccines in the country as Europe becomes embroiled in a battle with one of the drug makers. Italy also added to the confusion with the resignation of Italy’s Prime Minister Giuseppe Conte.

EURGBP is trading at 0.8863 as the pair seek support at the important 0.8870 level.

German Inflation Looks for Bounce

German inflation data is released today and the country is looking to bounce out of the recent deflationary environment with a reading of 0.7%. This would follow the last two -0.3% reading s for the country and would be a boost for the European Central Bank. The ECB has blamed the euro for the deflation in the Eurozone and threatened intervention. A higher number today would remove traders’ fears over currency wars putting a cap on the single currency.

The latest IMF projections for 2021 GDP have the UK slightly ahead of the Eurozone with a reading of 4.5%. This is a downgrade on their October projections, but this is due to the latest coronavirus outbreak and the resulting lockdowns.

The IMF numbers predict a 3% growth rate for Italy, but the country has struggled in recent years and there may be some downside risk to the Eurozone assessment.

Britain is moving ahead of the EU with around 7 million vaccines already administered in the country and over 78% of over 80s being given a shot. The IMF outlook may not be taking this difference into their conclusions as the UK could reopen much more quickly than the EU, which has barely gotten its vaccination program off the ground.

The EU is currently involved in a spat with Anglo-Swedish drug maker AstraZeneca over delays in the delivery of vaccines. This led to calls in Europe to limit Brussels-made vaccine shipments to the UK.

Italy Political Crisis Threatens EU Stability

The EUR to GBP exchange rate outlook is also at risk from the latest political crisis in Italy, with the country’s Prime Minister resigning after losing a majority. The issue has raised concerns about the future of the common recovery fund with Austria warning that it won’t allow its taxpayers’ money to be spent on countries who are not complying with distribution requirements.

Ministers in Italy are now discussing the best way out of the gridlock, which may see a return of Conte, but the currency markets like certainty and Italy threatens to be a risk to the project once more.

The downside target for the EUR to GBP rate would be at 0.8700, while a move higher would take the pair back into a range that contained prices from June last year.

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