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  • EUR/GBP is consolidating just to the north of its 21DMA and above the 0.8600 level.
  • The pair continues to trade within reach of recent multi-month lows, however, given the UK’s better pandemic outlook.

EUR/GBP has recently dropped back after hitting its highest levels in over two-weeks just to the north of the 0.8640 mark and is now again trading close to the 0.8600 area. The pair has traded with a positive bias for most of the week, moving higher from starting levels around 0.8580 on Monday to back to the north of its 21-day moving average which currently resides at 0.8603. On Tuesday, the pair trades flat.

Driving the day

EUR/GBP continues to trade within reach of multi-month lows, an ongoing reflection of the divergence vaccine rollout performance between the EU and UK. In the UK, over half the adult population has been jabbed at least once. In most EU countries, this is still under a fifth. The UK’s better vaccine performance is sadly also now reflected in the Covid-19 spread data; while cases, hospitalisations and deaths are fast dropping in the UK, a third wave is engulfing the EU. With a large proportion of the EU’s more vulnerable population still yet to be vaccinated, hospitalizations and deaths continue to sadly climb, meaning that while the UK is still on course for its roadmap out of lockdown, the EU is on the road towards tighter lockdowns (Germany just extended its lockdown, meaning the country is in lockstep with the likes of France and Italy).

Note that another reason why the EU is seeing a wave of Covid-19 now is that the mainland is now being battered by the more virulent and deadly Covid-19 strain first discovered in Kent in the UK, the strain that hit the UK so hard in December to February period. At that time, the wave of Covid-19 faced by the EU was not as bad as it was dealing with the “original” strain. Now the EU is sadly struggling with a worse strain.

With the EU now panicking as it faces a third wave of Covid-19 and reeling from the political fallout of its comparatively poor vaccine rollout (EU citizens are rightly indignant that the vaccine rollouts in the UK and US are going so much better), the bloc is increasingly turning to vaccine nationalism – or at least the argument that EU citizens should get priority access to vaccines that were made in EU territory. According to EU sources, the bloc might be about to abolish all country exemptions for vaccine export restrictions (in effect tightening the grip on vaccine exports) and may restrict exports to countries with high vaccination rates – this puts the UK very much in the crosshairs. EU/UK tensions, already frayed, may be tested as this saga plays out, and this could leak across into further damaging trade ties, which would be GBP negative – the UK is yet to get EU financial services equivalence for the city of London, for example.

The coming week

Looking ahead, sterling traders have more key data points to keep note of this week including February Consumer Price Inflation and March preliminary Markit PMIs on Wednesday, followed by February Retail Sales data on Friday. Note also that BoE Governor Andrew Bailey will be speaking on Thursday at 09:30GMT. Meanwhile, the Eurozone also sees the release of preliminary March Markit PMIs on Wednesday, as well as a speech from ECB President Christine Lagarde. Thursday will be another important day, with a few ECB officials scheduled to give remarks and EU27 leaders scheduled to meet.