GBPEUR Trades at 1.16 as Markets Fear Bonds Again

GBPEUR Faces a Key Moment in the Uptrend

The GBPEUR exchange rate was trading at 1.16 in early Friday trading with no economic data left in the week. The pair has seen a busy week with German and Euro inflation, followed by the UK Budget.

The markets could be quiet until the US open as the latest US Non Farm Payrolls number is released, but a speech from the Federal Reserve Chair last night has rattled bond markets again after no new stimulus was announced.

Where Next for Bond Markets?

The bond markets are rattling stock markets and commodities as investors begin to price inflation into the recovery, earlier than was previously expected. UK 10-yr gilts trade at 0.78% after being at 0.5% last month and with no new stimulus measures announced from central banks, the rates have ticked higher.

Markets were looking for some reassurance from the Federal Reserve after the recent bond market gains but Powell suggested that the central bank would sit tight for the foreseeable future.

“We think our current policy stance is appropriate,” Powell said.

Fed officials have also dismissed the inflation threat as temporary, and a sign that the markets are seeing growth expectations.

Rising bond yields always raise the potential for a Greece-style financial crisis, where government debts become unmanageable to finance due to higher repayments. This is more important now, since governments debts have exploded with pandemic spending. The pound to euro rate would move depending on the rates in key European nations versus the UK.

Rishi Sunak Reprimanded for Budget Leaks

British Chancellor Rishi Sunak has been criticized by Parliament Speaker Lindsay Hoyle for the leaking of significant announcements worth more than £100 billion ahead of Wednesday’s budget.

It did seem suspicious that anonymous newspaper “reports” clarified every key detail, such as the furlough extension and the 6% corporate tax increase. Ten out of 13 measures were reported in advance, according to Reuters.

Hoyle said: “It is very disappointing that one of the biggest moments in the parliamentary calendar has been undermined by the continuous leaking of significant announcements to the media over several days”.

In vaccine news, Italy has blocked the export of 250,000 AstraZeneca vaccines to Australia. Italy is the first EU country to use the union’s new rules, which allow exports to be halted if the company providing them has failed to meet required delivery standards.

The figures show the growing discontent with being stuck at home and the country could see a strong rebound in activity over the next few months as restrictions are lifted.

The next significant economic release for the GBPEUR rate will be next week’s ECB interest rate decision and the markets will be looking for an update on bond buying from the bank in light of the recent yield hikes. The pound to euro is still in the middle of the 1.1500 – 1.1700 range that has capped prices over the last week and the ECB may help to spur a breakout.

Get in touch to discuss these factors in further detail to see how your currency exchange is likely to be impacted.