The GBPEUR rate pulled back from a fresh yearly high after European inflation figures dipped as expected. Sterling had touched 1.1706 in the morning session but was unable to hold onto those highs.
The pound to euro may pause with markets ahead of the latest Federal Reserve meeting, while tomorrow will bring the Bank of England’s latest interest rate update.
Pound Recovers From a ‘pre-MPC Wobble’?
The sold off sharply on Tuesday, but the price has since recovered to set a new yearly high.
Kit Juckes, Global Head of FX at Société Générale said: “Sterling has a very good run and is now having a pre-MPC wobble. Just as the biggest factor in sterling’s favour in recent months has been the fading of negatives, so the weakness is the lack of clear positive news.”
Other analysts are citing the lack of positive pound drivers as a risk with sterling seeing ground gains against the pound on the reopening roadmap and the expectations for a stronger recovery. That thesis could be open to change in future economic data, while the Monetary Policy Committee may prove to be overly cautious for some investors.
Tomorrow will help to clarify the bank’s expectations and prices can be adjusted accordingly.
Stephen Gallo or BMO Capital Markets echoed our own thoughts on a quiet BoE event tomorrow, saying: “We consider the March MPC to be a low-risk event for the GBP this week, considering how vital the developments in Q2 will be to the BoE’s overall policy stance”.
Inflation Reduces Risk With Vaccines in Balance
The pound to euro has seen inflation coming in as expected for the eurozone and this took earlier pressure off the euro currency.
A recent increase in bond buying from the ECB has also helped to reduce this risk for the meantime.
European countries were awaiting an update from the European medical regulator on whether they can continue with the AstraZeneca vaccine. The recent halt even saw in-fighting between European leaders as the rollout stumbled once again.
German health minister Jens Spahn was facing calls to resign over his handling of the crisis after his decision to block AstraZeneca jabs. Angela Merkel’s CDU party also dropped to a ratings low in a new poll this week. France’s Macron and Italy’s new premier also signalled a reversal of the ban, while Poland’s Prime Minister accused other nations of acting on “misinformation” in the media.
The EMA could approve the vaccine today but it was yet another obstacle in the path for Europe’s rollout. The UK could be fully open in the second quarter, while the EU would be likely unrestricted in the third quarter.
The GBPEUR rate could still get above the 1.17 level if the BoE is supportive of the recovery tomorrow.
Get in touch ahead of the meeting tomorrow to discuss these factors in further detail, and be kept up to date with the latest market movements.
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