GBPEUR Drop Could Signal More Euro Gains

Pound to Euro Gains After Weaker German Retail Sales

The GBPEUR exchange rate has failed at the 1.1280 resistance level this week and Friday’s drop could signal a pullback. The pound has been strong against the euro as the UK government ramped up its vaccination program. Weak inflation in the Eurozone was balanced out by the ECB’s latest rate meeting, where the bank decided to avoid any further monetary action.

GBPEUR was trading at 1.1238 at the close on Friday and the price could target the support levels down to 1.1100.

ECB Rate Meeting Sees no Action

The European Central Bank has boosted the single currency by refusing to budge on interest rates and stimulus at the January meeting.

Inflation figures this week showed that the bank has a task on its hands to reignite the economy, but officials will be hoping for a reopening of the economy to achieve this organically. The other issue is that the bank has already delivered stimulus of almost 2 trillion euro and there is a limit to what is available. The ECB did state that they have headroom to act, saying:

“The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner”.

The ECB President Christine Lagarde noted that loose monetary policy will accompany the economy restart:

“Once the impact of the pandemic fades, a recovery in demand, supported by accommodative fiscal and monetary policies, will put upward pressure on inflation over the medium term”.

The Bank of England has also backed off from further action on rates and stimulus after the Brexit agreement was signed. The path of the GBP to EUR exchange rate will now focus on the virus and economic data. Next week will see employment data released for the UK economy.

UK Retail Sales Deal Another Blow to Sterling

The recent virus-led gains in the pound were also hit by weak retail sales. The 0.3% rise in retail sales for December was a big drop on expectations after a 4.1% drop in November. The numbers underlined a bleak Christmas performance for retailers and a likely tough year ahead.

The figures are being driven by the closure of “non-essential” businesses, but it heaps further pressure on the sector. In economic terms, retail sales have added virtually nothing to the GDP picture and the current lockdown will continue this trend.

Data of electronic card payments this month has seen a decline from being slightly above the pre-pandemic level in December to being around 35% below it in January.

The retail sector will be hoping that the government’s current vaccination efforts can hit their goal of 15 million of the vulnerable age groups and workers by mid-February.

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