The GBP EUR exchange rate was higher on the week after the pair surged on Thursday with the latest ECB interest rate and policy meeting. The bank held interest rates at zero but said that they could start buying bonds at a reduced rate over the next months. Traders see the move as being pressured by the recent rise in inflation and will remove some of the artificial support from the economy over the second half of the year.
The GBP to EUR was trading above the 1.1700 level once again and the UK will dominate the high-level economic data this week with employment and inflation figures.
‘Not a tapering but a tentative sign’ from the ECB
The headline for the week was the ECB meeting and the bank held interest rates at zero but hinted at a reduction in bond purchases.
ING analysts said: ‘It is not tapering but a very tentative sign that tapering could eventually come’. They also noted a small victory for the hawks as the bank would stop front-loading bond purchases in light of the surge in inflation.
ING also said that the ECB were finally checking in with reality as the economy had recovered to not require such stimulus, while they were finally accepting inflation. Both the BoE and ECB have now set their stall out for early tapering plans and traders will watch the coming economic data to gauge the economic progress.
The UK will lead this week with inflation figures and unemployment, with the latter being affected by staff shortages. The UK’s economic recovery has stalled in recent weeks as the reopening peak fades, but the government’s surprise 1.25% hike in National Insurance tax this week is said to have threatened the recovery even further.
UK economic data returns to the forefront
The UK economy has had two very light weeks on the economic data front but this week will see employment data on Tuesday, followed by inflation on Wednesday.
The UK economy is slowing slightly due to the supply chain issues and staff shortages effect but the economy is still stronger than much of its peers and any slowdown will likely be matched in the eurozone.
Coronavirus cases have been a concern for the UK and cases have risen by 12% in a week with over 40,000 new cases according to government figures. The SAGE advisory group was pressing the far button again with Prof John Edmunds saying:
“I don’t want to say it’s just about schools opening because it isn’t, it’s with a wider reopening of society that I think we’d expect to see, now summer’s over, organisations will be starting to expect their employees back at work in the office, and I think that employees want to go back to the office, and all of that will add to increased contact rates and increased risk in society.”
The UK government was forced to deny newspaper reports that it was planning an October lockdown.