GBP EUR Rattled by Latest Virus Emergence

GBP EUR Soars Above 1.2000 After Rules Dropped

The GBP EUR exchange rate dropped over 100 pips on Friday as markets panicked over the potential for a new coronavirus variant. For the GBP v EUR that could slow the potential for a UK interest rate hike.

The GBP EUR will start the week at 1.1778 with German inflation ahead. The latest price index is expected to hit 5% but the country is heading for further restrictions and traders will look beyond it.

UK ‘panicking unnecessarily’ over latest coronavirus strain

The doctor who discovered the latest coronavirus variant has said the UK is panicking unnecessarily, while South Africa’s health minister said travel restrictions were “uncalled for”.

Joe Phaahla said international travel restrictions will not prevent the spread of the virus and instead suggested testing and social restrictions to help live with the virus.

Dr Angelique Coetzee, chair of the South African Medical Association, told the Andrew Marr show: “What we are seeing clinically in South Africa, and remember I’m at the epicentre – that’s where I’m practising – it’s extremely mild. For us, that’s mild cases.”

“Some of what I’ve read from some of our clinicians has been that thus far they have not witnessed severe illness. Part of it may be because the majority of those who are positive are young people,” she added.

When asked if the UK was “panicking unnecessarily”, she said: “I think you already have it there in your country and you’re not knowing it, and I would say, yes, at this stage I would say definitely. Two weeks from now maybe we will say something different.”

Financial markets dumped on Friday over fears of lockdowns and that could upend the recent trends.


Central bank projections could be altered on government actions

For the pound sterling versus the euro, the latest government actions on the virus will be key.

Sterling sold off on Friday as traders considered the potential for the UK’s seemingly imminent rate hike path to slow down. The inflation picture could once again turn to deflationary pressures if Christmas lockdowns are enforced.

Professor Neil Ferguson, who started the first lockdown with his virus projections, told Radio 4:

“Even if we have had 100 or more cases seeded into the country and even if it’s going quite quickly it will take really until January for it to reach levels which are anywhere near the levels we’re getting from Delta at the moment, we’re getting 40,000 cases a day or so from Delta.”

“That’s not to say we can be complacent. If we do see very rapid growth from Omicron, and that’s a big if at the moment, we have no guarantee we will, but if we do then undoubtedly, I think the government would be wise to keep all options on the table in terms of how to respond to that.”

The Bank of England had been expected to lift interest rates in December, but the rise of a new variant may allow them another excuse to stay on hold, while trigger happy governments could implement heavy-handed restrictions.

The GBP to EUR was trading above 1.1900 recently with the 2020 highs in sight, but has stumbled again.

Pound Sterling Forecast – Powered by Lumon