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GBP/EUR on edge due to continued post-Brexit border disruptions

Pound Sterling (GBP) has slipped against the euro (EUR) ahead of today’s comments from the Bank of England (BoE) but has recovered losses against the US dollar (USD). Continued post-Brexit border disruptions are weighing heavy on the British pound to euro (GBP/EUR) exchange rate, which is currently trading around the EUR 1.17 mark while the British pound to US dollar (GBP/USD) exchange rate has hit the USD 1.40 level once again.

UK ports continue to face trade disruptions but UK/EU tensions have become intensified by the EU’s decision to take legal action against the UK in relation to a trading ‘breach’ with Northern Ireland.

The UK extended its grace period on the movement of goods between the UK and Northern Ireland, which the EU have deemed to be unlawful given that Northern Ireland remains on the EU’s single market. Prime Minister Boris Johnson has responded by labelling the grace period as “temporary, lawful and part of a progressive and good-faith implementation of the Northern Ireland protocol”. Tensions between the UK and EU will likely cause further volatility in the British pound to euro (GBP/EUR) exchange rate.

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Federal reserve system symbol on hundred dollar bill closeup. US central bank

Fed optimistic about US economy

The US dollar (USD) is gaining ground following comments from the Federal Reserve yesterday that the US economy could recover faster than expected. The Fed increased its forecast for US economic growth in 2021 from 4.2% last year to 6.5%.

Interest rates have been left untouched as it’s indicated that there will not be a rise until at least 2023. Fed Chair, Jerome Powell, stated that he wanted to see a complete economic recovery before amending monetary policy.

The euro (EUR), has risen slightly against the US dollar today, with the exchange rate standing at USD 1.19, whilst holding steady against both the Japanese yen (JPY) and Canadian dollar (CAD).

Whilst COVID-19 cases in the US are on the decline, US medical professionals are concerned about the rate in which vaccinations are being deployed in comparison to the rapid spread of coronavirus variants. States such as Texas and Mississippi have recently eased restrictions, which have further raised apprehensions on the spread of variants. On 17th March, new recorded cases stood at 58, 856 in comparison averages of over 200,000 each day in January.

Whilst the UK and US appear to be successfully tackling the spread of coronavirus, it is a different story for the EU. Italy’s Prime Minister Mario Draghi recently announced that Italy would re-enter a national lockdown following a significant rise of coronavirus cases as a third wave of infections spreads across the Eurozone.

The World Health Organisation (WHO) has previously called on authorities to step up, warning that some countries are on a “dangerous track” and made specific reference to Europe at the time. Following the recent influx of cases, it seems clear that other EU countries will need to re-introduce restrictions quickly in order to curb the further spread of infection.

Coronavirus cases spiralling in Europe is already weighing heavy on the euro (EUR), and the single currency could engage in a downwards trend if the situation prompts further policy action from the European Central Bank (ECB).

EU coronavirus cases dampening euro sentiment

Risk appetite could fade towards the end of the trading week as foreign exchange (FX) markets begin to price in the deteriorating coronavirus situation in Europe.

The third wave of COVID-19 in Europe, which is posing a threat to recovery across the Eurozone is dampening euro (EUR) sentiment and further impacted by the suspension of the Oxford-AstraZeneca vaccine.

France reported a record 38,501 cases yesterday, up from 19,235 on the last day of January while health authorities confirmed full occupation of ICU beds in Paris on Monday. The rise in infections has prompted a lockdown announcement which is due tonight.

Several of the bloc’s largest economies are set to introduce more stringent coronavirus restrictions and measures in response to rising infections, causing the euro (EUR) to waver in FX markets, and further downside is likely with the potential to intensify pressure on the ECB to inject more monetary stimulus.

Recent economic data has also begun to show the impact these new restrictions are having on the EU, as activity in the services sector has fallen into contraction territory.

With the list of negatives for the euro’s (EUR) outlook growing as coronavirus cases continue to rise, governments renew restrictions on social activity and question marks over recovery build, the single currency is vulnerable.

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