EUR to GBP Faces a Pivotal Week with Inflation and ECB

EURGBP Hovers at Ten Month Lows Before Data

The EUR to GBP exchange rate found support at the key November low of 0.8870 in early Monday trading. The support level supported price from June into year-end throughout the Brexit negotiations. The market now awaits inflation data from the UK and Europe, alongside an ECB rate decision and this could be a pivotal week for the next path in the EURGBP.

EURGBP was higher by 0.25% and the price will likely be quiet until the data begins tomorrow.

The EUR to GBP rate will see the release of big-ticket economic data this week that will decide the currency pair’s next path. The first release will be German inflation rate tomorrow as Europe’s largest economy seeks to bounce from deflation. The market still expects a reading of -0.3% but a slightly better number could see strength in the euro. Germany will also see the release of the ZEW sentiment index with the survey of business owners expected to come in at 60, versus 55 for the month. This release does not have the same interest for traders in light of the current busines conditions in lockdown.

Wednesday could be a big day for the pair as the UK releases core inflation data in the morning, followed by the same number for the Eurozone economy. Traders are expecting a reading of 1.3%, while Europe is expected to remain at 0.2%.

Thursday will then define the EUR to GBP outlook for the near-term with a European Central Bank interest rate meeting and press conference from the central bank. Minutes from the bank’s December meeting were released last week and confirmed once more that the bank is unhappy with the recent strength in the single currency.

UK Hopes to End Lockdowns in March as Vaccine Rollout Continues

Optimism over the UK vaccine rollout was a support for the British pound last week and the government is said to be on track for administering 15 million vaccines to the most vulnerable in the population by mid-February. Downing Street has said that it hopes to start easing its lockdown measures by March as it presses ahead with Europe’s quickest rollout of vaccines.

The UK is now in its third national lockdown and this is likely to push the economy into a double dip recession. Last week saw November GDP contracting by -2.6% and this is on track for a -8.5% reading compared to the previous year. The UK’s services sector has been badly hit due to tourism and hospitality, leading to the worst reading since records began in 1997.

The chancellor stated that things were likely to “get worse before they get better” and the only thing supporting the pound is a likelihood that they will escape lockdowns before Europe.

We also saw political instability in Europe last week as the Dutch Prime Minister and his ministers resigned over a payments scandal. The Italian government is also nearing collapse and many citizens reopened restaurants and ignored the virus lockdown measures in defiance.

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