- EUR/GBP has nudged a little higher on Tuesday, with focus more on US fundamentals.
- The pair swung either side of 0.8900 as bears continue to eye key support to the downside in the 0.8850s.
EUR/GBP has nudged a little higher on Tuesday, with focus more on US fundamentals (US Treasury Secretary nominee Janet Yellen’s testimony to Congress stole the limelight) as opposed to European fundamental themes. The pair has swung either side of the 0.8900 mark, with the bears still eyeing a test of key support to the downside in the 0.8850s.
Eurozone Update
Aiding the EUR are reports suggesting that Italian PM Giuseppe Conte is getting close to securing a majority in the Senate ahead of a confidence vote on his government. He needs to secure 161 votes in order to guarantee a majority and is currently reported to have around 156/157 votes, but this might be enough if the Viva Italia Party’s 18 members (who triggered the crisis that the government currently faces by pulling out of the coalition over disagreements on how the spend the EU Recovery Fund money) abstain. The latest reports suggest they will. At the very least, an election seems unlikely at this point, with a majority of Italian political parties preferring not to hold an election in the midst of the pandemic and before EU rescue funding is allocated.
In other news, Germany confirmed that it would be extending its current lockdown restrictions until at least 14 February, as indicated over the weekend. Meanwhile, ECB governing council member Mario Centeno spoke of the need to expand the euro’s international role, but noted that the eurozone will face a significant challenge in doing so. Finally, the reaction to the Tuesday morning session release of stronger than expected German ZEW numbers for January had limited impact, with focus instead on the more widely followed January Markit flash PMI release on Friday.
UK News
The latest daily UK Covid-19 statistics were mixed; on the one hand, cases rose 33,355, another decline and down from over 70K additional cases a little over a week ago. The rapid drop in the infection rate shows that the latest lockdown is working, or at the very least that after meeting with family and friends over Christmas (contributing to the spike to more than 70K cases per day), the nation has drastically reduced its number of social contacts. However, 1,610 were reported to have died after testing positive with Covid-19 in the last 28 days, a new record number daily number that suggests, as far as the hospitals are concerned, the worst is far from yet over.
Meanwhile, according to government sources, top officials are realising that tough restrictions are likely to remain in place in large UK cities perhaps even as late as May given the high level of infections. Much depends on what happens with the death rate over the coming weeks as more and more of the most vulnerable in the UK are vaccinated; most analysts assume there will be a fast drop off in the death rate as those most likely to die acquire immunity. As the death rate drops, policymakers are likely to have a more difficult time justifying why strict lockdowns should remain in place. Given its vaccination lead, the UK is still likely to be able to fully open up ahead of its developed market peers.
Elsewhere, Bank of England Chief Economist Andy Haldane sounded quite hawkish, as is typically the case; he said that QE is a temporary action to keep borrowing costs low and, somewhat interestingly in a world of central bankers who are for the most part desperate for more inflation, said that the UK does not need higher inflation that would cause borrowing costs to rise.
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