- EUR/GBP is flirting with multi-month lows in the mid-0.8500s but is yet to break convincingly below support around 0.8540-0.8550.
- Neither the BoE rate decision nor comments from ECB President Lagarde have injected much impetus.
EUR/GBP trades lower by about 0.2% or roughly 15 pips on Thursday, with the pair just about managing to squeak out fresh multi-month lows under the 0.8540 level during the European morning session, but failing to break convincingly to the south of recent (i.e. March and February) lows in the 0.8540-0.8550 region. At present, the pair is consolidating just above this area in the 0.8550s, as bears gather their strength for the next attempt at a push lower; should the 0.8540-0.8550 support area go, the door is open (technically speaking) for an eventual move all the way down to the next area of support around the 0.8300 level.
Driving the day
This morning’s Bank of England meeting was the main event of the day as far as EUR/GBP traders were concerned, but amid a lack of any surprises from the bank, did not have a noticeable impact on the price action. Similarly, comments from ECB President Christine Lagarde told the market nothing new as to the ECB’s view of the economy or policy guidance. A few of her comments were notable with regards to weekly PEPP purchase data, which is set to be closely scrutinised going forward after the ECB signalled that it would significantly increase the pace of asset purchases over the coming quarter to keep the recent rise in European government bond yields under wraps; Lagarde noted that weekly PEPP data will remain distorted by short-term factors but the step-up in the rate of asset purchases will become visible over a longer time period.
In pandemic news of relevance to the UK and EU; the vaccine rollout in the former continues to truck along at a solid pace with nearly 26M having now received their first dose and the daily death toll falling under 100 – over half of the adult population has now received at least one vaccine dose the UK government announced gleefully. Meanwhile, UK PM Boris Johnson said that though the country will receive fewer vaccines in April than in March, the roadmap to reopening remains very much on track.
Turning to the EU; Italy and various other regions in the EU have restarted their rollouts of the AstraZeneca vaccine after the European Medicines Agency judged that the benefits of taking the vaccine outweigh the risks, in effect giving it the all-clear. The damage of this week’s delays and the damage to the reputation of the AstraZeneca vaccine in the EU are not yet clear, however, and are likely to put the EU’s programme further behind the US and UK.
Bank of England Recap
As expected, the Bank of England held interest rates at 0.1% and the bank’s QE programme was maintained at a total of £895B, with the Committee maintaining its commitment to completing another £150B in asset purchases by around the end of 2021.
In the monetary policy statement, the BoE maintained that the current policy stance is appropriate, noted that news of plans to reopen the economy are consistent with a slightly stronger economic outlook, but reiterated that it does not intend to tighten policy until there is clear evidence that significant progress is being made towards eliminating spare capacity and sustainably achieving its 2.0% inflation target.
The BoE’s minutes, released at the same time as the statement and monetary policy decision, show what Capital Economics thinks is a significant difference of opinion amongst MPC members with regards to different weightings on the balance of risks around the outlook for the UK economy.
Capital Economics’ UK inflation forecast suggests the BoE probably won’t think about reversing its QE programme or raising interest rates until 2023 at the earliest. As such, the economic consultancy thinks “markets have gone too far in expecting rate hikes from mid-2022″¦ We think that rates won’t rise above their current rate of +0.10% until 2026″¦ (and) as a result, we doubt the 10-year gilt yield will rise much above 1.00% over the next two years”.
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