Pound Sterling Forecast: GBP Rallies Higher Against EUR, Reaching 32-Month Highs

The pound to euro exchange rate has continued to rally higher following last week’s shift upwards with rates for GBPEUR currently sitting just below 1.13. Last Tuesday saw the first sizeable movements to start the new year and today has also seen considerable movement having hit a high of 1.1314 against the euro today. The mood in the UK appears to be more positive with the news of the roll out of the vaccination programme and the growing number of people who have already been given it. The Bank of England yesterday suggested that the economic rebound could be very sharp when the vaccination has been rolled out completely.

Following the Brexit trade deal that was agreed on Christmas Eve the market reaction to date has been considerably muted. Many banks and forecasters had suggested an improvement in sterling’s fortunes by about 4 cents for GBP vs EUR. The question is whether we are now witnessing a gradual improvement to those higher levels that were widely anticipated, or whether the severe economic hit of Covid-19 is having a wider impact on the price of sterling.

The number of global deaths has now broken over 2 million and comes at the same time as pharmaceutical company Pfizer announced it is delaying vaccine shipments to the UK and EU as it temporarily changes production to boost capacity from 1.3 billion to 2 billion doses this year. The government hopes that the Oxford vaccine could be a real game changer for the United Kingdom largely due to the fact that it does not need to be stored at such cold temperatures that the other two vaccines do require.

Is the UK Heading for a Double Dip Recession?

For the time being the British economy still faces the risk of a double dip recession which became even more apparent after last Friday’s UK Gross Domestic Product (GDP) figures. UK GDP shrank by -2.6% in November, the first contraction in six months and ties in with the four week lockdown in England that commenced 5th November. With the UK currently under stricter rules the downturn is expected to continue.

James Smith, Research Director at the Resolution Thinktank said “The sharp fall in GDP in November as England entered its second national lockdown suggests that the UK is in the midst of a double dip recession as it starts the year with even stricter restrictions.”

Today is a historic day which marks the inauguration of new US President Joe Biden. He has already prepared a raft of orders which will reverse some of Trump’s policies and any future decisions to include those that affect trade could see volatility for the US dollar.

The European Central Bank will meet tomorrow for the latest interest rate decision. Whilst no change in rates is expected any offerings in the minutes as to future policy could see market reaction for Euro exchange rates.

UK retail sales are reported tomorrow whilst the EU sees manufacturing and services Purchasing Managers Index data for the month of January.

If you have an upcoming currency transfer and would like to learn more about the factors impacting pound or euro exchange rates, contact myself, James Lovick, using the form below.

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