GBPEUR Higher as Merkel Faces Lockdown Backlash

GBPEUR Higher as Merkel Faces Lockdown Backlash

The GBPEUR exchange rate is 0.17% higher on Friday after German Chancellor Angela Merkel faced the prospect of a no confidence vote. Business sentiment numbers in the country were at their highest in two years, but markets are focusing on the political drama.

GBPEUR trades at 1.1692 after sterling snapped back from losses in the week to trade near the yearly highs.

German Businesses Show Optimism Despite Virus

German business sentiment was at its highest level in two years with rising demand for its manufacturing sector produce, which kept factories busy despite the spate of lockdowns.

The Institute for Economic Research (IFO) reported that the business sentiment index rose to 96.6, the highest since June 2029, with markets expecting a reading of 93.2.

Traders are shrugging off the positive data because of the fact that the UK should lead Germany in the second quarter once its economy is back towards full speed.

Traders instead focused on political issues after opposition politicians sought to hold a no confidence vote over Chancellor Angela Merkel’s ability to lead the country out of crisis. Her attempt to instigate further lockdowns over Easter were turned down by health officials and state leaders, which saw her make an embarrassing u-turn. It was a rare situation to see the German leader climb down on her plans and apologize.

The GBP to EUR rate is also moving higher after Germany was expected to declare France a high-risk virus zone on Friday. This would see automatic quarantine requirements between the countries and could hamper business travellers.

Markets Wait for US Inflation

Markets are now awaiting core PCE inflation data from the US and it could affect bond prices again if the figures show pressure on consumer prices.

This situation may rear its head again due to the current ship blockade in the Suez Canal. A huge tanker ran aground, blocking the entrance to the canal for up to 200 ships. Ten cargoes of LNG from the Middle East, bound for Europe, were said to be delayed for what could be weeks.

Traders will be happy that this has occurred in the Spring season but there is still a chance that delays of cargo could filter through the global economy with shortages and price hikes.

Traders will now be focused on next week’s German unemployment figures, but they will keep an eye on the Merkel situation. Ms. Merkel is set to step down this year after fifteen years in power, but markets will want to see a peaceful transition in the Eurozone’s largest economy with elections due in September.

The GBPEUR has resistance at the 1.17 level, with the 1.20 figure being the high in 2020, but traders are hesitating on placing large bets into the weekend. This week was the second time that the euro has failed to find strength for rebound after losses this year have been caused by the slower vaccination program.

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