- EUR/GBP has dropped to fresh multi-month lows in the 0.8720s on Monday.
- The UK hit an important self-imposed vaccination target, opening the door for accelerated lockdown easing.
- Economic re-opening optimism has been boosting GBP sentiment.
EUR/GBP has picked up where it left things off last Friday this Monday; the pair dropped immediately upon the resumption of FX trade at 22:00GMT on Sunday, as vaccine/re-opening optimism continues to drive outperformance in pound sterling. Having opened the session closer to the 0.8750-mark, EUR/GBP has now dropped into the low 0.8720s and the bears have their sights set on a test of the 0.8700 level.
Looking at the pair over a long-term time horizon, it continues to move south within the parameters of a long-term downwards trend channel, which it has respected very well over the past few months. For reference, a downtrend linking the 31 December 2020, 20 and 21 January and 5 February lows form the lower parameter of this downtrend, whilst a downtrend linking the 22, 26 and 28 January highs and 4 and 11 February highs forms the upper parameter of this downtrend. Beyond the 0.8700, it is likely that the bears will be targeting another test of the lower bands of this trend channel, which is likely to come into play around the 0.8680 area.
Driving the day
The UK hit a key vaccination milestone over the weekend; the country managed to hit a self-imposed target to vaccinate 15M of its most Covid-19 vulnerable citizens by mid-February. Everyone in the first four priority groups in the country has now at least been offered a vaccine. Meanwhile, internal government forecasts reportedly expect the number of hospitalised Covid-19 patients to half over the next month.
Given the above optimism, the UK government is understandable optimistic and UK PM Boris Johnson said over the weekend that he is to layout his re-opening roadmap on 22 February. Johnson said he will prioritise the re-opening of schools (which is likely to happen on 8 March). The next steps will be to allow non-essential retail to re-open, followed by hospitality. Restrictions on socialising may also be eased on 8 March, with people likely to be permitted to meet with friends as long as it is outdoors, as well as the resumption of some outdoor sports. Note that amid the vaccine success, the PM is facing strong pressure from lockdown-skeptic Conservative MPs who want a rapid easing of restrictions from April.
All of the above factors continue to underpin GBP outperformance versus the majority of its G10 counterparts; the country’s rapid vaccine rollout and drastic recent improvement in Covid-19 infection trends set the stage for the country to be able to confidently lift Covid-19 related economic restrictions significantly ahead of other developed market peers such as the EU, whose vaccination programme lags the UK’s woefully. This sets the stage for UK economic outperformance versus the EU later in the year, which is boosting GBP.
Note that though infection rates have been dropping on the mainland, concerns linger regarding the spread of Covid-19 variants (such as that first found in the UK or South Africa); advisors to Italian Health Minister have reportedly been suggesting that the country should impose another nationwide lockdown amid concerns over the spread of new Covid-19 variants. Talk of tougher restrictions in the EU highlights whilst there is all this talk of re-opening in the UK highlights the divergent fortunes of the two economic zones and maybe helping to weigh on EUR/GBP.
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