The GBP to EUR exchange rate soared to new highs for the year this week as sterling capitalised on weak European data and the first stage of Britain’s reopening plan. erased early week losses with a strong move higher into Friday.
GBPEUR touched new highs at 1.1774 on Thursday after UK PMIs outperformed the performance of European PMIs.
A Boris Bounce but MPs and Business Want More
The British Pound started the week in a positive mood as the UK marked the start of the first phase of reopening. The early change is in a return to outdoor gatherings, but 40 MPs wrote a letter to Boris Johnson urging that the lockdowns be lifted sooner. Johnson had said in February that “data, not dates” would guide his reopening roadmap. With over half the population said to be vaccinated and cases and fatalities dropping, that would seem to meet his criteria. The UK has a head start on many countries and could give the country some cheer, especially in the hard-hit services sector if he loosened the rules. With the most vulnerable age groups now having had their two shots, it would appear that the government are ignoring the statistics and moving down the age groups to fulfil their vaccine orders.
In Europe, France moved to another lockdown and German Chancellor Angela Merkel had hoped to follow, but she had to make an embarrassing u-turn after state leaders and health officials pushed back on her plans. Despite that, the EU vaccine rollout is still sluggish, and the bloc’s recovery will not be seen in the second quarter, with some of the third quarter possibly missed also.
The GBP to EUR rate has the 2020 highs of 1.20 in its sights and that would be the Q2 target for the pair.
Softer European Data Weakens the Euro
It was the Eurozone which had the key economic data for the week and it failed to ignite a spark in the single currency.
Tuesday saw German inflation coming in at analysts’ expectations of 1.7% and this followed a softer inflation read in the UK in the previous week, so it will take pressure off the ECB and the BoE would be the bank that has to worry about inflation first with a faster reopening timetable.
Wednesday was positive for sterling with upward revisions to UK GDP, alongside weaker German employment figures and softer Eurozone inflation. Germany lost -9k jobs compared to expectations for -3k. Thursday was another positive day for the pound versus the euro as manufacturing PMIs for some of the key countries saw the UK outperforming, while Germany, Italy, and Spain came in close to forecasts.
GBPEUR has a quiet week ahead on the data front and the pair will likely be driven by political headlines and the UK’s plans to open the economy. Monday will see Boris Johnson speaking about the country’s plans for foreign travel and this could be an early mover.
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