GBPEUR Seeks Direction as Germany Joins Lockdown

GBP EUR Higher as Inflation Jumps Again

The GBPEUR exchange rate was slightly lower on Wednesday after Germany’s lockdown extension saw a halt to euro gains on the week. The single currency had rallied early in the week after Boris Johnson’s decision on Sunday to extend the UK lockdown measures.

The pound to euro rate was looking for a clearer direction and today will see data from the UK and Europe with Purchasing Manager’s Index data (PMIs) and inflation.

GBPEUR was trading 0.11% lower at 1.1065 with support below at 1.09-1000 if the euro gains, while Monday’s highs near 1.1200 would be the target for the pound.

Merkel Extends the German Lockdown

German Chancellor Angela Merkel made an announcement yesterday to extend the country’s lockdown until the end of the month and this will see the country under some of its strictest measures yet. The news brought a halt to the euro’s gains this week as restrictions in the bloc’s largest economy will increase negative economic effects for the Eurozone.

The new measures in Germany will restrict non-essential travel of residents, which is a first for the country. Businesses in the country are now pleading for additional support to combat the anticipated business closures and job losses. Germany has begun its vaccination rollout at the end of 2020, but the pace has been slow and Chancellor Merkel has not been positive about the potential for traction in the first quarter. Many nations are now struggling after ordering huge batches of vaccines, but being unable to administer them efficiently.

The announcement of vaccines at the tail-end of the year gave investors hope of a quick recovery in the world’s largest economies but it is looking like it may be the second half of the year before normal activity resumes.

PMI Figures Ahead for European Nations

Today will see the release of PMI figures released for the UK and other European countries. The UK services number is expected to come in at 49.9 after a 47.6 reading last month. The services sector is the most important for the economy due to the influence of financial services and also the hard-hit airline, tourism and hospitality sector.

Wednesday will also see the release of European data with German PMIs and inflation, while France releases its latest inflation and consumer confidence numbers. German inflation numbers will be the most-watched number after the ECB’s criticism last year about the euro’s strength in the second half of the year. Officials from the ECB talked of currency intervention and the German number is expected to come in at -0.3% so there is likely a slow path ahead for inflation with the latest lockdowns. The bank would likely avoid an obvious intervention for something based on stimulus and market forces, but investors should be aware that strength in the euro may not be welcome and this is important as the country looks to see strong trade figures after Brexit.

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