EURGBP Seeks Gains as UK Indian Variant Fears Continue

The EURGBP exchange rate was 0.08% higher on Thursday after the inflation release for the UK and European economies yesterday. The pound is suffering from a rise in new cases of the Indian virus variant to almost 3,000. The government is trying to ramp up vaccines and surge testing in the affected areas.

The EUR to GBP rate is trading at 0.8630 in early trading as the euro attempts to get back to the 0.8650 level.

UK awaits updates on Indian variant

The Indian variant of the coronavirus could be 50% more transmissible than the type seen in the UK, Welsh First Minister Mark Drakeford has said. Wales has reported 25 cases of the variant that has now seen almost 3,000 cases in England.

The UK government has pushed surge testing and vaccinations in affected areas after the recent spike. England’s deputy chief medical officer Jonathan Van-Tam also said that the Indian variant is more transmissible than Kent variant, but data is needed next week to determine by how much.

Boris Johnson has said that no one should travel to amber list countries with confusion over international travel rules, but that doesn’t explain how over 100 direct flights were allowed in from India to the UK after the Indian variant increase.

Johnson also said that there was evidence that vaccines helped against the variants of concern: “We’ve looked at the data again this morning and I can tell the House we have increasing confidence that vaccines are effective against all variants, including the Indian variant”.

The euro v sterling rate will depend on the virus situation with much of the big monthly data already released in the last two weeks.

BoE refuses to panic over inflation

The EUR to GBP rate failed to move in sterling’s favour, despite a doubling of the annual inflation rate to 1.5% in April. The UK government’s favoured measure for the cost of living has risen at the fastest pacw for more than a year.

The Bank of England is refusing to panic over inflation and the central bank insists it is a temporary increase.

The BoE governor Andrew Bailey told the Economic Affairs Committee that the Bank’s forecast is for inflation to “pick up” in the near future as the economy bounces out of lockdown.

Bailey said: “We do expect that to change because there has been quite a strong shift in energy prices relative to where we were a year ago… so the judgement that the MPC has had to make is… do we think that those base effects which left on their own will be temporary, will not persist, and inflation will come back down to some point”.

Traders have accepted that explanation for now, but the year-on-year inflation figure has risen 9.9% to April compared to a prediction for 4.4%.

The EURGBP has resistance at 0.8700 and support for the year is below 0.8500 but the pair is seeking to advance further above 0.8600.

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