The GBP to EUR exchange rate reversed earlier gains to hit highs near the 1.1600 level. The market saw another poor employment release from the UK, but traders are expecting the furlough to be continued. Eurozone inflation data also came in as expected and the market is now looking at the reopening strategy from Boris Johnson and its implications for economic growth.
GBPEUR has a target of 1.2000 but the market will need to see further catalysts and the budget on March 3 could be a likelier timeframe to get closer to that price level.
Eurozone Inflation Comes in as Expected
Data from Eurostat this morning showed Eurozone consumer prices rising by 0.9% on a yearly basis, which matched analysts’ expectations. The January figures also saw core inflation higher by 1.4% as expected.
Eurostat reported:
“The lowest annual rates were registered in Greece (-2.4%), Slovenia (-0.9%) and Cyprus (-0.8%). The highest annual rates were recorded in Poland (3.6%), Hungary (2.9%) and Czechia (2.2%).”
“In January, the highest contribution to the annual euro area inflation rate came from services (+0.65 percentage points), followed by non-energy industrial goods (+0.37 pp), food, alcohol & tobacco (+0.30 pp) and energy (-0.41 pp).”
A truer picture of inflation will occur later in the year when economies re-open and central banks may then have a headache on how to cool price increases. Higher interest rates would mean higher government interest payments and they may have a balancing act on their hands.
Deflationary pressures still exist with the labour market as the UK highlighted again this morning. The country lost another -114k jobs, compared to expectations for -30k. The unemployment rate also rose to 5.1% and this is while the furlough scheme is still supporting the jobs market.
Market Now Focuses on UK Reopening
Traders in the GBP to EUR exchange rate are now looking more closely at Boris Johnson’s plans for opening the economy, with non-essential businesses to reopen in April and foreign travel back in May.
The strategy is more cautious than some may have hoped, but with European nations behind the UK vaccination schedule, there is room for the pound to see gains.
Boris Johnson also hinted at the obvious extension of the furlough scheme that markets know is coming. The Chancellor is saving the announcement until the budget in just over a week and highlights that while businesses are looking for clarity, the government wants budget day fanfare.
Johnson insisted that the Government has no intention of “pulling the rug” and would protect jobs for the “duration of the pandemic.”
GBPEUR is higher on Tuesday by 0.30% as traders look to the second quarter bounce expected in the UKK economy.
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