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  • GBP is seeing some outperformance versus most of its G10 peers on Wednesday and EUR/GBP is back below 0.9050.
  • The pair slipped beneath its 21DMA but bounced at its 50DMA.
  • The legal passage of the Brexit deal, the announcement of tougher Covid-19 restrictions and the approval of the AstraZeneca vaccine are all in focus.

EUR/GBP has slid back from previous weekly highs around the 0.9080 level on Wednesday and now trades back below its 21-day moving average (at 0.9058) and the 0.9050 mark, although the pair did bounce at the 50-day moving average which currently sits at 0.9016. At present, the pair trades lower by just over 0.3% or about 30 pips on the day.

UK factors in focus…

1) The EU/UK trade deal is currently on its through the UK parliament, after EU leaders signed the agreement earlier in during Wednesday’s European morning session. The UK House of Commons has voted resoundingly in favour of the bill (521 in favour vs 73 against) twice (all part of the normal procedure for passing any bill) and the bill is currently in its final stage in the House of Lords. Confirmation that the deal will become UK law is likely by the end of the day. This ought not to impact financial markets, given the passage of the deal into law on both sides of the English Channel without hiccups expected.

2) UK officials have confirmed that England will be moving to tougher Covid-19 lockdown – UK Health Secretary Matt Hancock confirmed that more areas in the UK will be moved into the highest tier of economic restrictions, Tier 4. UK press had speculated throughout the week that such a move was likely, with UK Covid-19 cases surging above 50K for the first time on Tuesday. Many analysts expect an eventual return to a March-style lockdown (which same are calling Tier 5). The Midlands, North East and parts of the North West and South West will be moved to Tier 4 and almost all remaining areas moved into Tier 3. The spread of the new, more virulent strain of Covid-19 is increasing in the South West, Midland and parts of the North, Hancock said.

The new restrictions will be in force from 00:01GMT on Thursday. Meanwhile, UK PM Boris Johnson said that the new variant is making it more difficult to keep kids in schools and the government is going to have to look hard at what happens with schools. Analysts note that school closures are particularly economically damaging as they remove a crucial form of childcare from working parents. 

3) News that the UK has, as expected, approved the Oxford University/AstraZeneca vaccine is likely contributing to why GBP has not reacted adversely to the above noted negative lockdown news. The UK has ordered 100M doses (enough to vaccinate 50M people) and will start jabbing people next week. The UK is one of the leading countries globally in terms of percentage of the population already vaccinated (behind Israel) and is likely to reach herd immunity well ahead of the EU, a factor that could prove bearish for EUR/GBP.

Eurozone factors

EUR saw some mild negative ticks on some more jawboning from ECB members regarding the strength of the euro; ECB Governing Council Member Oli Rehn said that the bank is closely monitoring the exchange rate right as EUR/USD crossed above 1.2300, causing to dip back below. Though ECB jawboning might take the wind out of EUR’s sails a little, most agree that there is very little the bank can do to prevent further EUR appreciation (particularly against the US dollar) if it is not willing to further ease monetary conditions in the Eurozone (perhaps via further rate cuts or a faster rate of monthly asset purchases).

Separately, the EU and China have agreed in principle on a new investment treaty, a move that will open up new corporate opportunities, likely to the benefit of the Eurozone economy, but might also prickle the incoming Biden administration.