The GBP to EUR exchange rate surged to almost 1.1700 yesterday as traders placed further bets on a UK recovery in the second quarter. Boris Johnson’s reopening may be more cautious than hoped, but the country should be better placed than others to move forward.
GBPEUR is trading at 1.1615 after giving up yesterday’s advance and we may see the pair retreat ahead of the budget next week.
Focus turns to UK budget support
Traders in the GBPEUR are now turning their attention to next week’s budget on March 3rd and analysts are expecting to see strong support measures from the Chancellor. Boris Johnson said last week that the government would not, “pull the rug” on the recovery and it is expected that Rishi Sunak will continue many of the current programs. The most obvious one is the furlough scheme, which is likely to be extended again. The country saw another dismal round of job losses on Monday, with a rise in the unemployment rate to 5.1% and ministers would be nervous about removing the support measure.
Other measures expected to be extended are the VAT cut from 20 per cent to 5 per cent, alongside the business rates holiday, which could be boosted until the summer. It has been suggested that an online sales tax could be in the offing to counter the rise of e-commerce and VAT may be permanently adjusted lower as this comes in.
Conservative MP Giles Watling has urged ministers to take measures to prevent pubs and restaurants being undercut by ‘cheap supermarket booze’. The Prime Minister said yesterday that the Chancellor was “looking very closely” at the idea, but it wouldn’t happen in this budget.
The Resolution Foundation think tank has suggested a high street vouchers plan of £100billion could “increase the chances of a strong recovery from the pandemic-induced slump and to ensure the recovery reaches firms and families.”
Traders shrug at upbeat German consumer mood
Germany’s latest consumer confidence figures were released this morning and the number was slightly better than expected. The reading came in at -12.9 versus -14.3 expected and traders are happy to ignore consumer sentiment during the lockdowns.
The reading signalled the first monthly increase since October, while Chancellor Merkel and state leaders are expected to meet on March 3rd to discuss easing their own lockdown measures that are in place until March 7th. The virus infection rate in Germany had fallen at the start of the year, but has stagnated recently as worries persist over different strains. This could make it harder to outline a real reopening and the country is also behind the UK on vaccines.
The GBPEUR has support at 1.1500 and resistance at the 1.2000 level. The pair may consolidate between these levels before the Chancellor takes centre stage next week.