Pound to Euro Retreats After Brexit Strength

GBPEUR Reverses After German Employment Data

The pound to euro rate started the new year with an almost 0.050% gain for the single currency traders return from the Christmas and New Year holidays. The pair had seen a three-day rally in the pound after Boris Johnson’s deal brought an end to the drama of Britain’s exit from the trading bloc. Johnson’s deal passed the UK Parliament and House of Lords with hours to spare and ensured that the country would avoid World Trade Organisation tariffs on goods in 2021.

The pound to euro rate was trading at 1.1140 as the week began and the coronavirus spread is likely to dominate the start of the year.

UK Ramps up Vaccination Program as Cases Rise

With Brexit finally done, attention will turn to the spread of the coronavirus in the UK and Europe, whilst governments look to increase their vaccination efforts. The UK is now moving to administer the first shots of its vaccine from AstraZeneca and Oxford today, after the jab achieved approval last week.

Much of the UK is stuck in Tier 4 lockdowns but the government is warning of further restrictions as cases reach almost 50k per day. The Prime Minister is also under pressure to keep the country’s schools closed. Europe has also seen a rise of cases and a spread of the newer strain of the virus and this will drive the outlook for GBEUR in early-2021.

Scotland is now expected to move to another national lockdown, which is likely to last until spring, while restrictions are also being imposed further in European countries. The excitement that surrounded the emergence of the vaccine may not lead to the first half economic bounce that some had hoped.

German Data and Inflation Ahead

This week will see a return to economic data from the German economy and tomorrow will see German unemployment released. The unemployment rate is expected to remain stuck at 6.1% as lockdowns persist in the country. The EU’s largest economy will also see inflation figures out on Wednesday. The market is looking for a print of -0.3%, which would see the country still stuck in deflationary territory.

The European Central Bank was critical of a stronger euro last year and the pressures that it puts on inflation. Officials even warned of intervention in the currency to bring it lower and this may continue to make headlines if US dollar weakness continues. Now that Brexit is over, it also gives the UK an advantage if the euro strength since the referendum continues to hold.

The GBPEUR traded around 1.3000 around the time of the referendum and the signing of the Brexit deal has yet to see a significant rebound in the pound. That may change as the new year gets underway. Investment funds will want to include more UK stocks and investments as the country sees the Brexit risk premium removed, while it also has safe haven status in the event of a European economic event.

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