The EURGBP exchange rate is hovering at the 0.8760 level after the euro has tried and failed for two days to mount a rally. The price action suggests that support is there for sterling and the pair could look to move towards the next support level at 0.8685.
EURGBP is trading 0.12% lower on the day as the euro’s attempts to retake the 0.8800 level haven’t worked and the downside is the likely path if UK GDP is positive on Friday.
Germany Looks to Reopen the Economy Next Month
German Chancellor Angela Merkel wants to move towards a gradual reopening of shuttered retail and hospitality outlets next month if the virus rates continue to fall in the bloc’s largest economy.
Merkel will present a plan to the country’s 16 state premiers today which will also seek the continued closure of schools and non-essential stores. Germany has seen its virus rates declining since a peak near Christmas.
The German economy has seen its inflation figures jump to 1% this morning, despite the continued lockdowns. The data signals that the eurozone is exiting a period of deflation that was concerning to the European Central Bank. a second quarter recovery after lockdown restrictions are expected to be lifted in March. Analysts were expecting the bounce, and this has seen the EUR to GBP rate unmoved by the release.
The economies that do open up in March will have to contain inflationary pressures throughout the year. The Bank of England noted last week that citizens had been building up high levels of savings due to the lockdown measures.
NIESR Sees Sluggish Growth for UK Economy
The National Institute of Economic and Social Research (NIESR) has cut its growth projections for 2021 to 3.4% from previous estimates 5.9% due to the third lockdown inflicted on the country.
The think tank expects Britain’s economy to return to its pre-virus levels by the end of 2023, which is later than the Bank of England’s projections of the first quarter of that year. These estimates will depend on the end to this virus lockdown and the hope that there is no more drama in the subsequent flu seasons.
The gloomy estimates from NIESR reflect a belief that higher unemployment, weaker business investment and a restricted trading environment with the EU will drag on the UK, but the opposite may be the case. At current vaccination rates, the UK should be better placed to reopen fully before the EU and that would see investment flows increase to the UK. The UK should also regain the safe haven status that it enjoyed before the Brexit referendum.
Traders will now look for the UK GDP update on Friday to see if there is any faster path to these projected growth rates. Get in touch using the form below before this data release to discuss its potential impact on your EURGBP exchange.