GBPEUR Soars on BoE as Investors Look Ahead to Recovery

The GBPEUR exchange rate closed higher again at the 1.1430 level as traders continue to price in a recovery for the British economy. The Bank of England actions in the previous week were compounded by continued vaccinations and a better GDP number for the fourth quarter. Investors are now looking ahead to a reopening of the country in March with hopes for a bounce in economic activity.

GBPEUR has a key resistance at 1.1500 and this will determine whether sterling can get higher in the months ahead.

Study Sees Virus Figures Slashed with Vaccines

Coronavirus vaccines are on a path to stop 95% of deaths and 60% of hospital cases by March, a study has found. The Association of Anaesthetists reported the figures but said the reductions will not occur until “late March and into April 2021″.

The Prime Minister is still set to outline the roadmap to reopening on the 22nd February with a view to starting in March. His timeline will align with this vaccine outlook and the Chancellor’s second budget on the 4th March, so the UK economy will have a springboard to start the second quarter. This includes £125bn of savings that UK households have built up in the lockdowns, according to the Bank of England.

The EU has fallen behind in its vaccine programme and this could see the UK mounting a stronger recovery in 2021 than its European counterparts, but this will depend on the Prime Minister’s plans. If the PM slows the reopening and lets the EU catch up with vaccines it would be a big blunder.

GDP Improves but Clouds Still Exist

The UK saw the release of preliminary GDP for the fourth quarter on Friday, which showed a 1% growth figure for the quarter. This was double analysts’ expectations for the quarter, while the December figure was 0.2% higher despite the lockdowns.

The economy is still 6.3% below its pre-virus levels and this was the worst contraction in over 300 years . The strong performance in the UK economy was largely attributed to services with a gain of 1.7%, while manufacturing showed a slim 0.3% gain. There was also a slowdown in construction for the quarter, which is the first slump since the virus outbreak began.

The Chancellor will have his hands full next month as he tries to deliver a budget that supports the economy in multiple troubled sectors. Some have also warned against hiking tax rates too early, while incomes are falling, so Rishi Sunak faces a balancing act and his moves could make or break the country’s rebound.

The pound to euro exchange rate outlook is still moving on the expectations for a UK rebound and the pair may have seen its largest moves until more clarity arrives in March. If you have an upcoming curency exchange and want to know more about the factors impacting it, you can get in touch using the form below. I’ll be happy to get in touch and discuss your requirements.

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