The GBPEUR exchange rate is pulling back from last week’s advance on the Bank of England rate decision but the lines in the sand are clearly drawn. The pair tested the 1.1400 level on Thursday and is now trading at 1.1375. The data ahead this week could determine which end of the recent range we see next.
A move to 1.1500 could open up higher levels for the British Pound, while the 1.1300 level was stubborn resistance last year and that is the key to a euro recovery.
German Inflation Predicted to Hit 1%
Tomorrow sees the release of German inflation data and the figure is expected to come in at 1%. This would be a significant jump after being stuck in negative territory at -0.3% recently. A move higher would end six months of deflation for Europe’s largest economy and would be pleasing to the ECB after last year’s verbal attacks on a higher euro rate.
Last week saw the inflation rate, for the 19 countries using the currency, jump higher to 0.9%. The figures are still far from the bank’s 2% inflation target, but once the economies are fully reopened this could change.
Central banks would then have a dilemma with a move to raise interest rates putting the squeeze on government budgets. ECB Chief Christine Lagarde said yesterday that the bank would extend fiscal support after the economies reopen, but a period of stagflation would be their worst nightmare.
The global economy was slumping into the virus onset and needed a lifeline despite trillions of stimulus provided since 2009. The coronavirus provided the opportunity to pump further trillions into the system, but this can cause market dislocations as we saw in the GameStop stock chaos.
UK GDP Will Close Out the Week
Friday will see the release of the latest UK GDP growth figures and that will close out the trading week in the GBPEUR. Depending how the German inflation comes in, this could be the number to drive the pound higher.
The Bank of England has given the green light for a second quarter bounce in the British economy and the latest figures could provide a little extra cheer of the expected lifting of lockdowns in March. The UK Chancellor will also release the latest budget in early-March, and he could be given the platform to invigorate the British economy in the first budget of the post-Brexit era.
For the GBP to EUR exchange rate, this could be an important week. The UK has been steaming ahead with vaccine delivery and a push for the 1.1500 level could see another important breakout for sterling. Get in touch using the form below to discuss these factors in further detail and their potential impact on our upcoming currency exchange.