The GBP to EUR exchange rate has closed at the highs with the pair now above the April 2020 highs. The recent gains from the Bank of England interest rate meeting were met with some hints of good data this week to boost sterling.
Europe has also seen some promising economic data, but traders are expecting the UK economy to open up first with Boris Johnson set to lay out his staged plan on Monday.
Strong Services Pmi Helps a Limping Retail Sector
The UK saw weak retail sales on Friday morning as the lockdown continues to bite, but sterling bulls were bailed out by a strong services PMI.
Year-on-year retail sales were -5.9% lower compared to expectations of -1.3%. The Bank of England has said that households have £125bn of “pent up” savings which will likely support the retail sector as the economy opens, but structural damage is being done to the sector.
Germany saw another strong manufacturing performance with the PMI number coming in at 60.6 versus expectations of 56.5. The manufacturing sector is not affected by the lockdowns in the same way as other areas and exports in the EU have also held the economy together.
Sterling started to retreat on the German numbers but UK PMI a little later in the morning saw the important services sector coming in at 49.7 against the 41 expected.
Public sector borrowing was lower than expected, but the country saw its first January deficit. The Chancellor will take centre stage in just over a week to deliver his second budget and Rishi Sunak has been urged to “go big” on economic support by Citigroup.
Johnson Dragging His Feet on Reopening
Boris Johnson was accused earlier in the week of “moving the goalposts,” with regards to his reopening strategy. The Prime Minister poured cold water on expectations for a quick exit from lockdowns with a statement that “data, not dates” will determine the path ahead.
IfG, the Institute for Government thinktank, has warned that clarity is needed to save 1m jobs, while UK Hospitality said businesses were “hamstrung” by uncertainty.
IfG said: “The government has a chance to build on the success of its vaccine programme… But it needs to reassure the public that it won’t repeat the problems that have dogged its strategies in the past. A successful lockdown lifting is not just about producing a ‘roadmap’; it is about how you safely navigate the journey”.
The Prime Minister has a chance to give the country a green light for reopening, with the Chancellor then providing an economic spark a week later.
GBPEUR has the upper hand going into Monday’s “roadmap” and the Prime Minister could propel the pair towards the 2020 highs at 1.20 if he has a solid plan for reviving the country.
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