EUR to GBP Continues Lower Ahead of EU Inflation

EUR to GBP Continues Lower Ahead of EU Inflation

The EUR to GBP exchange rate was 0.05% lower in early trading on Tuesday as traders shrugged off a dismal jobs number from the UK and a very cautious reopening strategy from Boris Johnson. The EU will see core inflation released this morning with a bounce expected from recent lows.

EURGBP currently trades at 0.8637 after being driven below the April 2020 lows at 0.8685 last week.

France Breaks Record for Worst EU Deficit

France has set a new record for the worst trade deficit in eurozone history, according to new Eurostat data. The -82.5bn euro deficit is a risk to the country’s economic outlook and are a headwind to recovery when economies do open up. The country will need to take action to tackle the deficit and this will divert monies from growth-oriented strategies.

Today will see the latest inflation figures from the Eurozone with its core inflation rate set to come in at 1.4%, after 0.2% last month. The inflation figures for Germany have shown a recent jump in prices and the Eurozone is finally exiting the deflationary pressures of 2020. This will bring its own headaches as the world economy is now seeing bond yields rising.

The US 10-yr yield, which is the global benchmark for medium-term borrowing rates, has been on the rise recently and central banks will have to temper inflation as it threatens to increase government borrowing costs at time when deficits, like the French record, are on the rise.

The rise in inflation will also mean that stimulus measures may have to be curtailed and this could slow growth expectations.

Boris Johnson Releases Cautious Path to Reopening

UK Prime Minister Boris Johnson has released his strategy to get out of the current lockdown and this was cautious as expected.

The pound has been on the rise as traders anticipated a swift reopening from the country’s fast-moving vaccination program, but the country could see the Eurozone catching up on vaccines.

Johnson’s roadmap has non-essential businesses opening in mid-April, with foreign travel in May, and the return to normal conditions in June. With the vulnerable age groups receiving second doses of the vaccine already, the country could have capitalized on the head start that it had attained in vaccinations, but this has likely been wasted with the cautious approach.

Today’s rise in unemployment to 5.1% is an example of that and the country could have used a faster recovery plan. The ONS figures showed unemployment at the worst level since 2016 and the furlough scheme is helping to mask the true damage.

The EURGBP pair has support at the 0.8400 level, but pound bulls may pause until the next budget is announced on the third of March.