The GBPEUR exchange rate failed to hold on to a Services PMI bounce yesterday to close below the 1.16 level for the lowest close since March 3rd. Today will see the release of minutes from the European Central Bank’s most recent policy meeting.
The GBP to EUR has suffered a sharp two-day slump after traders unwound their hopes for an early reopening from Boris Johnson and trades at 1.1589.
ECB Will Enjoy a Quiet Moment
The European Central Bank minutes released today may not provide any real fireworks. The bank nudged up their bond buying levels in recent weeks as a response to the bond yield spike that threatened to squeeze government budgets. Since those events, the inflation picture has cooled globally as lockdowns persist.
One area that may be discussed is European government stimulus, as ECB President Christine Lagarde has urged governments to spend further to boost their economies. In the last week we saw France’s President and Finance Minister both seeking an increase to the 750 billion euros already committed. Their comments came as France was pushed into a further lockdown for one month.
The current recovery fund has hit a roadblock after being held up in the German Constitutional Court. French Finance Minister Bruno Le Maire has said the package is “not on the right track” and that he was “deeply concerned” at the hold up.
Speaking to Bloomberg TV, Le Maire said:
“If we want a strong economy, we need to invest, and invest right now. The key point is to have a quick EU recovery and have the plan implemented as soon as possible.”
This is one of the issues with the euro, where investors are still giving the benefit of the doubt to the single currency despite the realisation that the continent won’t be reopened until the third quarter, and these delays will increase the underlying economic damage before they can restart.
Le Maire urged a return to the “solidarity” of 2020 when governments rushed to collaborate for stimulus measures to boost the economy.
IMF Boosts UK Outlook Again
The International Monetary Fund (IMF) has increased its forecast for UK economic growth, from 4.5% to 5.3%. The big improvement was down to the country’s quick vaccination programme and the extension to the furlough scheme, among other stimulus measures.
The UK Chancellor Rishi Sunak, said of the recent developments and the IMF upgrade that, “there are reasons for optimism, and we are paving the way for brighter times ahead.”
The latest update from the IMF sees the European economy lagging behind at 4.4%, with Germany at 3.5%, but this will depend on the virus situation in Europe and the data would have been calculated before the latest French lockdown. The UK economy is expected to outpace the Eurozone after a slump in 2020, but it is still not expected to reach pre-virus levels until 2022.
GBPEUR surrendered the support at 1.17 recently and is now looking to find some support near 1.16. There is risk of further selling in the pound if Boris Johnson disappoints on his reopening plan.
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