EURGBP Pauses from Recent Surge on IMF Update

The EURGBP exchange rate is 0.11% lower on Thursday after a big two-day performance from the euro. The British Pound surrendered recent moves below the 0.8500 level after Boris Johnson crushed hopes for an early return to foreign travel.

The EUR to GBP rate trading near 0.8650 after the IMF upgraded Britain’s growth prospects, while Europe’s could slow further.

IMF Boosts UK Outlook, France Will Hit Europe

The International Monetary Fund boosted the growth outlook for the British economy after the recent budget spending and furlough extension. The IMF said that the UK will see growth of 5.3% in 2021, an extension to their previous prediction of 4.3%.

The group also cited the rollout of vaccines for their prediction and said that the UK will return to pre-virus levels in 2022.

The European economy is expected to lag behind at 4.4%, with its powerhouse Germany growing only 3.5%. The issue for the euro is that the figures will have been researched prior to the latest French lockdown, while Germany’s Finance Chief said there was no rush to lift its own lockdown.

The British Pound has been powering higher against the euro on this dynamic, but the price hit a brick wall this week as hopes for a faster reopening were quashed by Boris Johnson. The latest news is that the UK will pass the threshold for herd immunity on Monday, while over half of the country is vaccinated, so the latest moves are becoming political and government are moving the goalposts for those who surrendered so much to adhere to their rules.

European Stocks Follow the Herd

Another herd situation is developing in stock markets with European stocks and the FTSE 250 seeing new highs for the year. Valuations in stocks are skewed to the upside on historical comparisons and are at risk of a pullback on negative news.

The Pound’s performance this week was another example of the optimism that pervades in markets, with traders expecting a quicker reopening and then selling off hard on the reality of the Johnson. The European stock market is ignoring lockdowns in two of its largest economies and a declining growth outlook from the IMF.

Miners are leading the way in the stock market this week and it’s another sign of the “risk-on” environment, which would be hit if the European virus surge doesn’t improve. Stocks are moving continually higher on the basis that governments and central banks will continue to push further stimulus measures, but they are still at risk of sharp corrections on changes to the lockdown policy.

EURGBP is trading at 0.8630 and will look for further support this week to unwind the recent gains in sterling. The Pound never did erase the pre-referendum premium that was handed to the euro despite the recent economic comparisons.

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