The GBPEUR exchange rate has failed to advance beyond the 1.1300 level after the European Central Bank failed to take any policy action. At their latest monthly meeting, the bank decided to keep rates and stimulus measures at current levels and that has capped the recent gains in sterling.
GBPEUR was trading lower by 0.22% in early trading on Friday and a quiet session is likely for the day.
ECB holds off no further policy action
The European Central Bank has left its interest rate and monetary policy on hold at the January meeting as analysts had expected. The bank decided to hold off on any further action as the new year gets underway. The recent inflation picture in the Eurozone would suggest that the bank is unhappy with the current trajectory and committed to following their 2% inflation target, 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 bank is possibly waiting for economies to move closer to reopening before making any decision. Once the government virus restrictions are lifted then we can expect to see growth and prices pick up.
The ECB President Christine Lagarde said:
“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 ECB has kept its bond buying programme at 1.85 trillion euros and this is scheduled to run into March 2022. We can probably expect some extension before then as it is unlikely that the EU economy will emerge quickly from the virus.
Slow vaccination progress could hamper the euro
The Eurozone economies have been hit with delays of the coronavirus vaccine and this could impact the GBP to EUR exchange rate in the near-term.
The EU said on Tuesday that it was planning to administer vaccines to 70% of its adult population by the end of August. In the UK, the government has said it hopes to have offered all a vaccine by September, so the country has an advantage.
Many EU countries have struggled to get their vaccination programs off the ground and this is a risk to the euro outlook. Germany’s most-populous state announced a delay to the opening of vaccination centres, after the manufacturer was forced to delay vaccine deliveries in Europe over a production issue.
The latest talk in Europe is that governments could suspend transport links with the UK after Germany proposed the idea. Chancellor Merkel said: “We will for the first time, talk to the European heads of government and state about the mutation and we will certainly have the common goal to curb this virus, which means there will need to be special measures, I think they all agree, regarding travel from Great Britain and for example from South Africa, as prompted by Germany.”