GBP to EUR Closes Near 2021 Highs After ECB Meeting

GBP EUR Starts the Week with 1.1800 Test

The GBP to EUR exchange rate has closed the week near the 2021 highs of 1.17 after the ECB hinted at larger bond purchases, while the EU vaccination program stumbled into another roadblock.

GBPEUR closed the week at 1.1642 and the pound will need to see the UK economy reopening for further gains.

UK Growth Dips in January with Lockdowns

An update for UK GDP saw the economy dropping -9.2% in January as the lockdown continued to hit the important services economy.

The number was better than analysts’ expectations for a -10.9% dip, while the three-month average for UK growth was -1.7%. UK growth is now 9% lower than February 2020, which marked the pre-virus economic stage.

For the UK economy, the services sector was the biggest drag, with the sector falling by 3.5 per cent. The sector is home to the retail and hospitality sectors and has been hardest hit.

The Bank of England talked of longer-term “scarring” in the economy and this is likely with large corporations scaling down their real estate footprint in the UK. This would have a knock-on effect on chains like Pret a Manger or Starbucks.

ECB Talks of ‘Undesirable’ Bond Moves

Investors were waiting for the ECB press conference to guide the gbp to eur exchange rate but it came in as expected.

The ECB mentioned the recent rise in interest rate and said they were “undesirable” with a commitment to act. ECB Chief Christine Lagarde said:

“We will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions”.

Lagarde also mentioned a “firm rebound in economic activity in the course of 2021,” if the virus did not reappear, but this is not certain, while the EU has also seen another roadblock in its vaccination program after the AstraZeneca was shelved in Denmark over blood clots. The Danish decision to block the vaccine saw 10 other nations following suit.

The move may be temporary, but it could keep the European Union’s rebound on ice as the vaccine supplies get shuffled around once more. Germany and France are committed to the AstraZeneca jab but the situation could change with further negative headlines.

Next week sees the latest Bank of England interest rate announcement but the central bank is likely to follow the path of the ECB with a warning about taking action over adverse bond market moves and it may not affect the pound to euro exchange rate outlook too much.

GBPEUR has support at 1.15 and resistance at 1.17 and the next path will be determined with a break of one of these levels.

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