EUR GBP Rises Ahead of Central Bank Double Header

The EUR GBP exchange rate was 0.20% higher on Wednesday as traders await a rare double header of the Bank of England and European Central Bank. Both central banks have interest rate meetings on the same day and that will create volatility for the EUR v GBP. The ECB and BoE will do nothing on rates with Omicron as the excuse.

The EUR v GBP was trading at 0.8525 with the 0.8500 level being key support.

UK back in virus variant fear mode

The UK is now dealing with two epidemics and previous records will be broken in the coming weeks, according to England’s chief medical officer Chris Whitty.

Speaking at the Covid Press Briefing, he said: “I’m afraid we have to be realistic that records will be broken a lot over the next few weeks as the rates continue to go up.”

He said: “What we’ve got is two epidemics on top of one another – an existing Delta epidemic, roughly flat, and a very rapidly-growing Omicron epidemic on top of it.”

But he also said that current figures highlight the number of deaths appear to have fallen. Whitty said: “These are going down very slightly but this doesn’t reflect anything regarding Omicron because the emergence of Omicron is too recent.”

The Bank of England meet today and will reiterate their stance on temporary inflation.

Europe’s recovery bounces back but risks still remain

Europe’s economy is set to grow faster than previous forecasts but the road to recovery is still unclear given with the Omicron variant, rising inflation and supply chain bottlenecks.

GDP in Europe is expected to reach 5% by the end of 2021 in the EU, and the eurozone area. That’s higher than the previous forecast of 4.8%.

As we move into 2022, the economy is expected to grow by 4.3% before a moderate 2.5% for the EU and 2.4% for the eurozone. As we have seen with economic forecasts lately, it depends on how the Covid-19 pandemic develops.

The recent rise in cases has shaken markets and the increasing government restrictions could impact economic activity.

An unexpectedly sharp inflation rise in Britain has put further pressure on the Bank of England’s decision tomorrow. Traders may be cautious, but it is unlikely that there is a rate rise tomorrow.

The Bank of England and European Central Bank have both committed to interest rate hikes as far away as 2023, despite the current inflationary spike.

“This makes tomorrow’s interest rate decision look closer, but on balance we think the Bank of England is more likely to keep rates at 0.1% until it learns more about the Omicron situation,” said Paul Dales, at Capital Economics.

However, George Buckley at Nomura said that stronger-than-expected growth in factory gate prices, combined with CPI, would add to the pressure for a rate hike.

He added that consumer price growth could hit 6% in April, but the BoE seems unmoved by inflation far beyond their 2% target.

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Source: https://www.eurorateforecast.com/2021/12/eur-gbp-rises-ahead-of-central-bank-double-header/