EURGBP Steady Ahead of PMI Data

The EURGBP exchange rate is flat in early trading on Friday as the market awaits PMI figures from the German, European, and British economies. Some early data saw UK borrowing reach its highest level since WWII and consumer confidence was lower, but retail sales doubled expectations. The euro was higher versus the pound on Thursday after the latest ECB interest rate meeting.

The EUR to GBP rate is trading at 0.8680 with the single currency looking to get above the 0.8900 obstacle that capped the recent gains in the pair.

UK borrowing soars with lockdown damage

UK public sector borrowing soared to £303bn in the last year, according to the Office for National Statistics, which marked the highest government borrowing levels since World War Two.

Tax receipts and National Insurance contributions were also both lower for March by £28bn. The numbers will add a cloud to the recent strong performance in some parts of the economy and will highlight the work that still needs to be done by the Chancellor to somehow fix those debt levels.

Consumer confidence surveys from Gfk were lower than expected but this is a lagging indicator based on lockdowns and retail sales were actually double the market’s expectations at 7.2% for March. This was confirmed with strong numbers from the likes of Primark this week, where the chain saw sales records broken at many stores with the reopening of the non-essential businesses and increased opening hours. The budget clothing chain will also reopen with less competition than it had before after the lockdowns decimated the sector.

German PMIs saw a slip on composite and services data but the all-important manufacturing data was higher and that will boost the euro. The same numbers will be released for the Euro area countries and the UK later this morning and that will define where the euro v pound heads next will all of the data confirmed for the week.

ECB commits to bond buying pace

The European Central Bank has committed to holding its key interest rates at zero on Thursday and they also committed to purchasing bonds “at a significantly higher pace” for the foreseeable future.

ECB Chief Christine Lagarde said: “We still have a long way to go until we’ve crossed the bridge of the pandemic and the recovery is sustainable and solid”.

She also insisted that any market focus on the winding down of stimulus would be “premature”.

The ECB’s PEPP pandemic purchase scheme is buying bond at the same rate as the height of the crisis in March last year. Investors have supported this but it highlights the underlying uncertainty as the continent grapples with high virus numbers and a slow vaccine rollout which could see the reopening delayed, while the UK has already moved on and the retail sector and hospitality industries are set to rebound.

The EURGBP bounced from the 0.8600 level this week and is eyeing further gains above the 0.8700 resistance which capped the recent rebound in the euro.

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