EURGBP Extends a Bounce Higher as Budget Looms

The EURGBP exchange rate was 0.33% higher on Friday as the pound starts to unwind the recent reopening gains ahead of the budget. The UK’s vaccination program has been the driver of sterling gains in the last few weeks but some profit taking has emerged as the UK budget looms next week.

EURGBP currently trades at 0.8700 after French inflation ticked higher.

French Inflation Higher, Polish GDP Ahead

The EURGBP pair is set to see medium strength economic data on Friday and French inflation has ticked higher with a reading of 0.4%. This was a 0.1% move higher than expectations and was largely expected after recent price gains in the Eurozone and Germany. Poland will release its latest GDP figures this morning with markets expecting a Q4 drop of -0.7%. This will be followed by French and Hungarian employment figures for January.

Monday will see a government budget from Italy as the Draghi government moves ahead, while German inflation will also be released. The following day will see unemployment figures for Germany and this will bring us to the UK budget on Wednesday.

The economic situation in the UK and Europe is largely price in and bar any outsize moves in the economic data, the EUR to GBP could consolidate the recent moves into the UK budget. Chancellor Rishi Sunak is facing calls from all corners to support business sectors, while ex-Chancellors are throwing their “tuppence” into the conversation with calls to break election manifesto promises.

European Stocks Sell-off on Interest Rate ‘Rout’

European stocks wobbled on Thursday, alongside their US counterparts, as bond yields moved swiftly higher across the globe.

Deutsche Bank said of the move:
“Yesterday proved to be nothing short of a rout in global markets, with the selloff in sovereign bonds accelerating as investors looked forward to the prospect of a strengthening economy over the coming months”.

Central banks have downplayed the potential for inflation in the year ahead, despite a recent uptick in prices. Europe and the UK both saw higher inflation rates despite the country’s being stuck in lockdowns and the vaccines are giving potential for the global economy to open up with large amounts of household savings available to spend. Central banks have suggest the 2023-24 period for any move on interest rates but the markets are maybe looking to force their hand.

The move in US ten-year yields to 1.6% rattled stocks and the Australian Reserve Bank injected the largest bond purchase since the March 2020 market panic. Recent inflation data has been joined by very strong US retail sales and better than expected GDP figures for Europe, so traders are adjusting their bets for the economic recovery.

The EURGBP made a sharp move through the support level at 0.8685 level in the last two weeks and this will be the level to watch in the week ahead.

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