The EURGBP exchange rate was -0.34% lower in early trading on Wednesday as traders bet that the UK’s cautious reopening plan will still see them move ahead of the European Union on growth.
EURGBP currently trades at 0.8578 after touching a low of 0.8540 on the day.
German Growth Sees a Slight Upgrade
Germany’s fourth quarter growth came in better than anticipated with a reading of -3.7% compared to -3.9%. Other European nations have beaten analysts’ expectations and traders have ignored the figures as they concentrate on the path ahead in 2021.
Tomorrow will also see consumer confidence released for the Eurozone’s largest economy. The country has been performing well in sentiment indices, but with the ongoing lockdowns, retail-related figures are not the best indicator of future growth.
Traders have also shrugged off another dismal UK jobs number yesterday as they look at the potential for a boost from the budget next week. The Chancellor will boost the jobs market with another extension of the furlough program and this will help the country’s damaged sectors limp into the hospitality and travel restart in May.
Bloomberg sees ‘bleak’ start to 2021 for Germany
Bloomberg has commented on today’s upgrade to German GDP by predicting that, “lockdowns and slow vaccine rollouts mean the start of 2021 still looks bleak.”
Business closures and social distancing are still prevalent in Europe’s dominant economy, while vaccinations are lagging far behind the US and UK. This is why traders are reacting to the disappointingly cautious reopening by Britain with further sterling support.
The Bloomberg article also referenced comments from ING global head of macro, Carsten Brzeski, who said: “…a reversal of any pre-Brexit hoarding in the U.K. and weaker foreign demand at least from other euro-zone countries have increased the risk of an unwelcome rotation”.
Export-driven countries saw a big boost into year-end as the Brexit talks were dragged to the wire by political gamesmanship. British companies stockpiled vital supplies and components over fears of blockades at the ports. German businesses are now hoping for a second quarter recovery as the EU is starting to catch up on vaccinations. The irony for the UK is that Boris Johnson has stalled Britain’s own recovery potential by choosing the cautious and he will look foolish if the EU also reopens its economy in June. The UK government has been celebrated for its quick rollout of vaccines, but that will be useless if the country doesn’t use the benefits to boost the economic growth gap in the first real post-Brexit trading period.
The EURGBP pair has further support at the 2020 lows of 0.8400 level, but pound bulls could hold off until the budget in a week’s time before this level is troubled.
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