EURGBP Seeks to Rally from Recent Slump

The EURGBP exchange rate was lower by -0.13% on Monday as the euro holds support from a recent slump. The pair will see German and Eurozone inflation numbers on Monday and Tuesday, before the UK budget is announced on Wednesday.

EURGBP currently trades at 0.8645 ahead of the German prices update this morning.

Chancellor Seeks to Strike Growth and Deficit Balance

British finance minister Rishi Sunak is set to announce a further £5 billion pounds of grants to help businesses hit by the government lockdowns in his budget this week.

“Non-essential” businesses such as retail and hospitality could be among up to 700,000 companies which will be eligible for new cash grants of up £18k.

Mr Sunak said of the move:

“There’s now light at the end of the tunnel and this £5 billion of extra cash grants will ensure our high streets can open their doors with optimism”.

His comments are ignorant of the carnage in the country’s high street with the Arcadia brand of household names being the latest to crumble. The Topshop brand is moving online, while others such as Burton and Dorothy Perkins have been snapped up by online retailer Boohoo.

The Chancellor will have a job to convince investors that he can strike the right balance between growth and funding of the country’s deficit. The CBI industry group has urged Sunak to focus on the former with jobs, confidence and investment needed to give firms the “boost they need to bring the UK back to growth.”

The EURGBP outlook in the weeks ahead will largely be tied to the budget as the UK gets nearer to reopening. Boris Johnson’s cautious roadmap, alongside a cautious spending plan could hit the pound sterling.

German Inflation Numbers Will Set the Early Pace

The euro will be tested by the latest inflation numbers out of Germany and this will shine a light on the market turmoil of last week, which saw benchmark US 10-yr yields soaring.

Deutsche noted last week that the move was, “…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”.

Bond yields rose in France and Germany as traders look ahead to economies reopening and the potential for higher prices and pressure on government budgets.

One potential for a cooling of inflation would be lower oil prices and OPEC + meets this week under speculation that they will increase production. The glut in oil has subsided and the recent cold snap in the US has reduced inventories. Central banks will be watching the moves in the bond market closely this week.

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