The GBP to EUR exchange rate was holding the 1.1550 level as the market awaits the latest German unemployment numbers. Yesterday saw inflation tick higher in the country as prices remain elevated despite the ongoing lockdowns.
Eurozone core inflation figures are released later this morning but may not move markets too much. Energy prices have added to core numbers due to $60 oil and the market is expecting the figure to be around 1.1% higher for the month.
Germany Predicted to Lose Jobs Amidst Lockdown Revolt
The German economy is expected to post a loss of -13k jobs today and the number highlights the difference with the UK, which lost 114k jobs for the latest month. Germany’s export economy is seeing strong manufacturing performance as it is largely unfazed by lockdowns, while the UK economy sees its services-related economy hit hard. There is hope for the UK as it moves closer to reopening its economy while Germany struggles.
Chancellor Angela Merkel is now facing a rebellion from regional leaders and voters after moves to extend lockdown restrictions following a poor start to their vaccine campaign rollout. Several state leaders ignored the Chancellor by allowing ‘non-essential’ businesses to reopen from Monday. Bavarian leader Markus Söder, who is one of Mrs Merkel’s biggest supporters on the lockdown, is moving away from that stance. A majority of the country’s citizens are also supporting the easing of restrictions. A survey by ZDF found that 56 per cent supported such plans while only 41 per cent were opposed.
Germany has seen a low uptake in vaccines, with only 3.6 million people receiving a jab, compared to over 18 million in the UK.
All Eyes on Sunak Tomorrow with UK Budget
Tomorrow will see the latest UK budget announced by Chancellor Rishi Sunak and the pound to euro exchange rate could see a volatile day.
The finance minister has been warning about the need for future tax increases and spending cuts that will offset £300 billion pounds of government pandemic spending. Former Bank of England Governor Mervyn King said of the budget:
“It’s too early to judge by how much taxes will need to go up and spending cut. The right thing to do now is to keep options open and not to commit ourselves to a precise path for government tax and spending measures.”
Many commentators are worried that Mr Sunak will act too quickly to fix the deficit, which will effectively choke off the recovery just as the country is reopening. The Chancellor will have a balancing act between helping the battered sectors of the economy, while reassuring markets that the country’s finances are under control.
The pound sterling has been strong in 2021 as markets unwound the Brexit risk premium and moved on the UK’s fast vaccination rollout. This could stall if Rishi Sunak goes too heavy on taxes and creates a headwind for growth.