The GBPEUR exchange rate tumbled last week as hedge funds unwound their long bets on the British currency. Hopes for an earlier move on foreign travel were crushed and that led to a cascade of selling as big money bets pulled out. The EU is also increasing its vaccination rates and that helped the single currency find buyers.
The GBP to EUR rate touched 1.18 for new yearly highs on Monday but crashed over 200 points on the week to close around the 1.1540 level.
UK GDP Will Dominate the Week
UK GDP figures will be the leading indicator this week and the February 3-month average reading will be released on Tuesday. Analysts are expecting a loss of -1.9% for the month, but last week saw strong services PMI and construction data so it is possible that this filters through to the GDP number.
The UK is still edging out of lockdown, but every little upgrade helps ahead of that move and the International Monetary Fund has already upgraded the UK in the last week after changing its January forecast of 4.4% growth for 2021, to 5.3%.
The same day will see the ZEW economic sentiment readings for Germany and the Eurozone. These numbers have been supportive lately, but traders realise that they are based on projections for the next six months, which doesn’t mean much when France goes into another month-long lockdown.
Germany will release its latest inflation figures on Thursday, followed by the Euro number on Friday. The ongoing lockdown has weighed on the latest numbers and that has taken the heat off of the ECB’s monetary policy plans.
The European Central Bank said in its minutes on Thursday that they would allow rates to rise if growth was higher, otherwise they would intervene. The bank reiterate that they saw inflation as temporary.
UK Stalls on Reopening and Travel
Boris Johnson disappointed pound bulls on Monday with the market expecting his statement to see a possible loosening of the roadmap. The Prime Minister stuck to his previous plans despite his assertion that “data, not dates” would rule in the reopening path.
The UK’s move to May 17th foreign travel was also disappointing as a traffic light system was announced, while travellers are still expected to test before and after flying. It was noted that this could hit a family of four for £600 in testing, which would likely be more than Easyjet flights, as the company’s CEO noted.
The GBP to EUR exchange is unlikely to see any tourism-related boost in the months ahead and the market will have to look elsewhere for growth. The European data has been coming in as expected with no real improvements on expectations, but traders feared that they had gone too far in their sterling bullish bets and this was the story of the week. Investors will again watch vaccination rates after the EU blocked AstraZeneca vaccines for under 30s, while the UK saw its supplies of the jab wind down.
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