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  • EUR/GBP dipped to fresh multi-month lows close to 0.8500 but has recovered back to around the 0.8550 area.
  • The UK eased lockdown on Monday as the EU continues to struggle to contain Covid-19, weighing on the pair.

EUR/GBP dipped to fresh multi-month lows of just above the 0.8500 level on Monday, although over the last few hours the pair has rallied back to around the 0.8550 area, which puts it back within last Friday’s levels. Having been as much as 0.5% down on the day at earlier lows, the pair is now flat, with the recovery coming in tandem with GBP handing back the bulk of its gains versus the majority of its G10 counterparts.

Driving the day

Aside from the fact that EUR/GBP was able to print fresh lows since February 2020, it was a relatively quiet session in terms of Eurozone and UK news. The main theme of the day was arguably pandemic divergence, i.e. the fact that as the EU heads into ever tougher lockdown to slow the spread of Covid-19, the UK on Monday took a step towards freedom as it entered stage two of its roadmap out of lockdown.

The fact that the UK’s near-term economic outlook is far better than the EU’s given its much more rapid vaccine rollout is well established at this point, but every hurdle reached with regards to the UK’s reopening goals marks an achievement that ought to be GBP positive – this certainly seemed to be the case on Monday.

Elsewhere, another factor pointed at by market commentators as a potential explanation of GBP’s early outperformance was increased chatter from UK government officials over the weekend regarding soon-to-be-delivered Moderna vaccines. The UK has ordered 17M doses of the jab which will start to arrive in April, easing fears of vaccine shortages that have recently been triggered by the shift towards vaccine nationalism in the EU and India.

In terms of central bank speak, there was nothing particularly new from either ECB or BoE speakers. For reference, starting with the BoE; Monetary Policy Committee member Gertjan Vlieghe gave comments to the UK press earlier in the session and was his usual dovish self. A few strong quarters of growth should not mean the bank alters its monetary policy stance, he said, adding that some inflation this year would not be nearly enough to conclude that the economy no longer needs monetary help.

ECB members also for the most part came across as dovish; Chief Economist Philip Lane said that the central bank must remain a key stabilizer of the Eurozone economy, given that the bloc remains at risk of suffering long-term damage from the double-dip recession that has been caused by the pandemic. Meanwhile, ECB’s Pablo Hernandez de Cos reiterated that the accommodative stance of the ECB remains necessary.