The GBPEUR exchange rate is trading at highs not seen since May 2020 as the pair awaits a catalyst for the next move. This week will see a potential return to EU inflation, alongside the latest interest rate announcement from the Bank of England.
GBPEUR closed the week at 1.1284 and investors are looking for a clear change in the fundamentals before making any big investments in the pair.
Can the Eurozone Escape Deflationary Pull?
The GBPEUR pair could see movement on this week’s Eurozone inflation release. A jump higher is expected from 0.3% to 0.9% and this would be more in line with UK inflation rates. The number would also be the highest for the EU bloc since early-2019.
The issue of inflation is important because the European Central Bank were critical of the euro’s strength last year and this was mentioned in the January ECB meeting. The bank had threatened to intervene in the rate, so a higher number would see traders more confident to bet on the single currency.
The Bank of England will release its own interest rate and monetary policy decision this week, but the bank are expected to hold steady on any changes. The UK Chancellor Rishi Sunak is being pressured by businesses to extend the furlough scheme and the central bank will be buoyed by the fast movement of the vaccination rollout in the country.
Policymakers are likely to wait for further clarity on the path of the virus before making any commitments and government data has suggested that the numbers are going in the right direction for the country.
Vaccination Crisis Drags on the Euro
The European currency has been under pressure after a vaccine crisis gripped the bloc. Delays from drug makers Pfizer and AstraZeneca have left the, trailing behind the UK in vaccinations and this has been the key driver of pound strength recently.
Britain has vaccinated over 11% of its population already, while the EU countries are hovering at levels around 2-3% There is a real chance that Britain could be open for business while the UK is still trying to catch up.
The EU Commission announced an embarrassing climbdown from threats to block the export of Brussels-made vaccinations to countries such as Britain. The EU released a statement announcing it was not planning to control vaccine exports into Northern Ireland.
The Commission had threatened to already exploit a Brexit loophole by triggering Article 16 of the Northern Ireland Protocol. It would’ve seen vaccine deliveries into the country slowed down. The EU has backed down after criticism from the UK.
The GBP to EUR outlook for the week ahead will be driven by the Bank of England and EU numbers on inflation and GDP, but traders are mindful of vaccination push and will be looking to see if the UK can continue to exploit the EU’s weaknesses.
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