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GBP EUR Tumbles Through 1.17 as Rally Unwinds

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The GBP EUR exchange rate was -0.50% lower on Thursday as the recent rally in sterling began to unwind. The pair’s failure to hold gains above the yearly highs around 1.18 has seen profit-taking set in.

The GBP to EUR has dropped to 1.1675 as traders fret about the latest rise in virus cases in the UK.

UK virus increase and rate gloom hits the pound rally

The pound sterling has seen its rally fade as the UK continues to see a rise in virus cases and fatalities. A further 113 people are said to have died in the UK ‘within 28 days of testing positive’ for the coronavirus, according to the latest government figures.

Another government adviser was adding fear to the equation with Peter Openshaw saying: “We’re going into the winter with really very high levels of infection out there in the community and we just don’t really know what’s going to happen”.

The pound moved above the yearly highs against the euro near the 1.18 level in the last two weeks but sterling has faded as traders worry that the good news has now been priced into the British currency.

The UK saw a strong 4.8% second quarter GDP release recently but this was 0.2% lower than the Bank of England’s target of 5%. Sterling then saw a lower inflation increase with the rate dipping to the BoE’s 2% target. Both of these developments mean that a rate hike for the UK is far off and the virus issue adds a further headwind to the UK outlook.

UK sees release of consumer confidence and retail sales

The GBP to EUR will have economic data in the form of consumer confidence and retail sales for the UK.

Consumer confidence is expected to come in at the same -7 reading as the previous month. Retail sales is also expected to dip to 6% from 9.7% as the UK consumer splurge slows down from the initial reopening.

The UK will also see the latest public sector borrowing figures and a drop of 11 billion is expected from the previous month as pandemic spending lessens with the economic reopening.

The UK inflation figure dipped yesterday but ING bank sees it as the ‘calm before the storm’. Analysts at the Dutch bank said, “UK inflation is unlikely to be far off 3% in August and will probably be fairly close to the Bank of England’s 4% forecast by November.”

The bank also sees the figure decreasing into 2022, which is in line with the BoE forecast of ‘transitory’ inflation. Economists do not expect a rate tightening in the UK before late 2022 or into 2023. Central banks globally are following the same tune and the New Zealand dollar was set to buck the trend, but the country then locked down completely over one virus case. This allowed the bank to put the blame on Australia, which was a statement echoed by the country’s Prime Minister.

The post GBP EUR Tumbles Through 1.17 as Rally Unwinds appeared first on Pound Sterling Forecast.


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