- EUR/GBP is trading just above multi-month lows in the mid-0.8500s.
- Euro and sterling traders await Thursday’s BoE rate decision and comments from the ECB President.
EUR/GBP continues to trade within the ranges of the last week or so, although prices did see a brief dip as low as the 0.8540 level in early European trade, which was a monthly low. For now though, trade within 0.8550-0.8600 parameters seems likely ahead of key events on Thursday in the form of the BoE rate decision and comments from ECB President Christine Lagarde.
Driving the day
There haven’t been any game-changing fundamental developments on Wednesday so far; the mainland European Covid-19 situation continues to look bleak, as the continent heads inexorably back into lockdown. The latest domino to fall was Poland, which admittedly is outside of the Eurozone and so does not have a direct impact on the euro, but still the news does not bode well for Eurozone economic performance in the coming weeks. Talk from health officials in Paris is that lockdown restrictions could be tightened soon. Germany also appears tilted towards lockdown tightening/extension and Italy will be in lockdown over Easter.
With the pandemic situation worsening, the decision by numerous individual Eurozone countries to ignore advice from the central European Medicines Agency and halt the rollout of the UK’s AstraZeneca vaccine is likely to push back the timeline to herd-immunity on the bloc, and likely also their prospects for economic recovery. European Commission President Ursula von der Leyen insists that the EU can still get 70% of its adults fully vaccinated by the end of August, but this target is looking increasingly tight.
In stark contrast to the fortunes of the Eurozone’s vaccine rollout efforts, the UK’s vaccine drive is accelerating, with the country administering over half a million jabs on Tuesday, close to a daily record. The vaccine rollout is expected to accelerate markedly over the coming weeks and reports suggest all UK adults will be offered their first dose by 10 June. The impact of increased community immunity to Covid-19 is evident in the infection/hospitalisation/death rate data, which is dropping at a significantly faster pace than following the first wave of infections back in March/April 2020.
Given the above, it is perhaps not surprising to see EUR/GBP trading just above multi-month lows. For the next big leg lower, markets may want to see confirmation of UK economic outperformance versus the EU in the coming months.
Meanwhile, Central bank divergence is another factor to take note of; the BoE is sounding optimistic on the economic outlook and seems reluctant to take interest rates negative, contrasting strongly with the much more dovish ECB, who have recently accelerated the pace of asset purchases over the next quarter to counter rising bond yields – this divergence will be on display on Thursday and is another factor that might weigh on EUR/GBP going forward.
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