EURGBP Flat as Markets Prefer to Wait on ECB Meeting

The EURGBP exchange rate was trading unchanged on Tuesday morning as the market is undecided about the pair’s direction. The European Central Bank meets on Thursday and some will see it as risky to place any bets ahead of that event.

The EURGBP traded at a low of 0.8540 after Boris Johnson announced the country’s reopening plan. The exchange now sits at 0.8565 ahead of the ECB event.

Did the BoE Governor Give the Strategy Away?

The Bank of England Governor Andrew Bailey was speaking during a virtual event yesterday, where he warned of some inflationary pressures in the months ahead.

Mr Bailey said in the call that the goal was to get inflation to their target and “keep it there”. Traders have been reacting lately to a rise in government bond yields and have expected central banks to jump in an move rates lower but that didn’t happen. The ECB actually saw less bond buying in their weekly report for two weeks, while the Federal Reserve Chair Jerome Powell did nothing at a recent talk to cool investor fears.

It’s possible that central banks are simply allowing inflation to rise and meet their goals before they start to make any changes to recent policy.

This is the important part of the ECB meeting on Thursday, where bank officials have tried to talk the yields lower but may not take real action for now. If they keep rates at current lows and do not make any bond purchase moves, then the euro could find some strength against the pound.

UK Schools Reopen as Lockdown Easing Starts

Schools in England are set to reopen this week as previously announced by Boris Johnson. This is one of the first stages of reopening which will be assessed after five weeks.

Yesterday, the UK saw the lowest virus numbers since October and this led to calls from Johsnon’s backbenches to accelerate the reopening.

The euro to gbp outlook will depend on the speed of reopening as the UK had gotten ahead of Europe in its vaccination rollout, but is probably squandering that advantage with Johnson’s cautious “roadmap”. The rollout of vaccines to the vulnerable age groups should really be enough to open the economy up again with similar protocols until it clears up.

The economic calendar is light for the pound with only a January update on GDP due on Friday. Traders are happy to wait for the ECB meeting and that could determine the near-term path for the EURGBP.

If the bank take action to lower bond rates in the Eurozone then it could see new highs for the pound. A more hawkish approach could see the euro recover. To discuss these factors in further detail and plan your currency exchange in advance, get in touch using the form below.

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