GBPEUR Closes at the Highs after UK GDP

The GBPEUR exchange rate has closed the week at last week’s highs around 1.1430. The pair is on track to test the next resistance at 1.1500, which was a high in April 2020.

Despite the worst economic downturn in 300 years, the latest GDP release saw the British economy close out the year with a 1% gain for the quarter, which was twice analysts’ expectations.

Rabobank Predicts Rocky Path to 1.1500

The Dutch financial services firm Rabobank has said the pound faces obstacles at the 1.1500 level.

Jane Foley, Senior FX Strategist with the company said the chances of a pullback due to politics was high. Foley noted one risk was the renewed tensions between the UK and European Union over Northern Ireland. The UK has asked for an extension to the grace period on the flow of exports to Northern Ireland.

The European Parliament has now also said it was looking to delay ratifying December’s Brexit agreement due to the current disagreement. The last-minute deal was pushed through while politicians were on recess and the EU Parliament has still not officially ratified it.

The two sides are also in talks to create a “memorandum of understanding” for the financial services sector. The financial services sector was excluded from the recent deal, but it is one of high stakes. This week saw trading volumes in the Netherlands outpace the UK for the first time ever. Stock exchanges in Amsterdam traded 9.2 billion euros a day in January, compared to London’s 8.6 billion.

Britain is seeking EU “equivalence,” which would allow UK-based firms to operate in the union and onboard European customers.

Rabobank added that, “Despite the market’s relief that the UK and the EU managed to strike a trade deal in December, it is becoming obvious that Brexit is casting long shadows”.

UK Economy is Like a ‘Coiled Spring’

Despite the gloomy mindset of some analysts on the pound, the Bank of England’s Chief Economist Andy Haldane has said the economy is like a “coiled spring” right now as people are “desperate to get back to their lives”.

Haldane’s comments came in a newspaper interview and he noted the recent analysis that UK residents had saved a record £125 billion due to the lockdowns. At the current pace, the country’ households would have £250bn by June.

Depending on when the economy opens, this glut of savings is likely to be unleashed into the services sector once retail and hospitality establishments are back open. The BoE has predicted a drop of over 4% for the economy in the first quarter, but a March reopening should spur the economy to a strong second quarter.

GBPEUR is on the front foot going into the next week with the 1.1500 level being the obstacle to further gains in sterling. Get in touch using the form below to discuss these factors in further detail to see how your upcoming GBPEUR exchange is likely to be impacted.

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