The EURGBP exchange rate was 0.25% higher on Thursday after the pair spiked to a low under the 0.8600 level on Wednesday. The low of the day was at 0.8540 and this could see the market move higher as traders take profits ahead of the budget next week.
EURGBP currently trades at 0.8625 after stronger consumer sentiment from Germany.
German consumer more positive despite lockdowns
German consumers were more positive than expected in the latest confidence reading this morning despite the continued lockdowns. State officials will meet on March 3rd to discuss the current measures, with a view to easing some of the restrictions and this is likely the cause for some upbeat consumer sentiment.
The country is still seeing virus cases, while the vaccination program is lagging behind the UK, so it may not be an exciting reopening plan from the country.
Europe’s largest economy was boosted by fourth quarter growth yesterday that was better than anticipated with a reading of -3.7% compared to -3.9%. Strong manufacturing PMIs had suggested that the economy was doing well, but there is a risk that the UK could outperform if the German government gets their reopening strategy wrong.
Hammond urges ‘home truths’ on economy
Former UK Chancellor Lord Hammond has urged the current government to risk being unpopular by telling “some difficult home truths” about the state of the economy.
Speaking to the BBC, Hammond said there was “long-term scarring” in sectors such as aviation and hospitality, transport and retail have likely “changed forever”. His comments come a week ahead of the next budget from current Chancellor Rishi Sunak
Figures show Britain’s economy contracted by 9.9% last year, while this week saw unemployment moving to 5.1%, despite the furlough program. National debt, impacted by the furlough, other support schemes and lower tax income; currently stands at more than £2 trillion.
Lord Hammond added that it was unlikely that the government could do anything in the “foreseeable future” that could bring the debt down.
Mr Sunak will have the opportunity to answer Hammond next week with his second budget, which is likely to add to the national debt with further support actions. It is also looking like some the government will have no problems with looking “unpopular” as they ready tax increases to support their spending. The corporate tax rate is expected to rise from 19% to 25% and while many hoped the country would be seeing a post-Brexit boom, it is trapped in a spiral of rising debt, unemployment and taxes. The Eurozone is also seeing some struggles with France on course for its worst budget deficit.
The EURGBP pair has further support near 0.8400 but the market will likely pause until the budget picture is clearer.