EUR to GBP Lower on European Inflation Data

EURGBP Tests April 2020 Lows as Inflation Heats Up

The EUR to GBP exchange rate was trading lower on Friday after the latest Eurozone inflation figures were underwhelming. Headline inflation was -0.3%, which was lower than the -0.2% reading expected. The figures will put pressure on the European Central Bank to act on deflation.

News this morning was that France had extended their border restrictions with Britain. France closed its border with the UK for 48 hours on the 20th December. The new measures will now be put in place “until further notice”.

Euro versus sterling was trading lower by 0.12% on Friday at a rate of 0.9030.

Eurozone Inflation Misses Analysts’ Expectations

Eurozone data on Thursday was underwhelming overall, with German Industrial Orders much stronger than expected. Orders were rising at a monthly pace of 2.3% versus expectations for a -1.2% drop. This was outweighed by inflation numbers for the Eurozone in December with headline inflation coming in at -0.3% YoY, versus expectations for -0.2%. Inflation has been an issue for the European Central Bank and the latest move to lockdowns won’t help the situation.

The deflationary tone in Europe could end up flipping the EURGBP pair to pound strength if the ECB go down the path of a large stimulus package, or negative interest rates. The ECB also talked of currency intervention later in 2020 after the Euro gained a lot of strength at the expense of the US dollar.

Today will see the release of the EU unemployment rate with markets expecting the number to increase by 0.1% to 8.5%. The current lockdown extension in Germany will put continued pressure on the jobs market.

Extended French Border Restrictions for the UK

France has extended the country’s border restrictions on the UK. The rules mean that only truck drivers and French or EU citizens with an essential reason are allowed to travel if they produce a negative COVID-19 test result from the last three days. The imposition of these measures saw big hold-ups of lorry drivers around Christmas.

The measures will be extended “until further notice” after the country grew fearful of a spread of virus cases. The French health ministry reported two clusters of the new virus variant with a total of 19 people affected in Brittany. The UK is struggling to contain its own virus outbreaks and the euro to pound outlook will be guided by a relative ability to contain the virus and rollout vaccines in order to reopen the economy. Britain’s Transport Secretary Grant Shapps said today that there were concerns about how effective the vaccine might be against the latest virus variant.

Resistance for EURGBP is still at the 0.9100 and the 0.9175 levels, with the latter being a key level last year.

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