GBP/EUR steady ahead of ECB monetary policy meeting

The British pound to euro (GBP/EUR) exchange rate managed to recover last week’s losses, currently hovering around the EUR 1.17 mark. The currency pairing was holding steady during the beginning of today’s trading session ahead of the European Central Bank’s (ECB) monetary policy meeting this afternoon.

The ECB will publish its latest decision on interest rates and monetary policy, though it’s anticipated that there will be little policy changes. It’s expected that the ECB will discuss the recent rise in bond yields and how this could impact monetary policy in the long term. Many are of the opinion that the bank should also clarify its stance on the Pandemic Emergency Purchase Programme (PEPP).

Claus Vistesen, chief economist at Pantheon Macroeconomics, stated that “the ECB’s communication, mainly around the PEPP and the increase in long-term bond yields, has left investors confused, and we think the president will be pressed hard by journalists today, for clarity.”

Some economists have speculated that the ECB could announce an extension to its EUR 1.85 trillion quantitative easing programme, currently due to end in March 2022.

GBP/EUR set to rise further

The British pound (GBP) has edged higher against its major currency competitors this week due to a variety of factors. The UK’s rapid vaccination programme continues to underpin Sterling as it’s revealed that over 22 million people have received the first dose of the coronavirus vaccine.

This week has also seen schools reopen across the UK, part of Prime Minister Boris Johnson’s first step in easing the UK out of lockdown. Should this first step be successful, the next major stage could see non-essential UK businesses reopening on 12^th April. It’s thought that the UK will experience a sharp economic recovery if this is the case, given that thousands of businesses have been shut since the beginning of January.

The euro (EUR) has been particularly struggling over recent weeks due to playing catch up with coronavirus vaccine deployment as well as rising coronavirus infections in the bloc. Daily covid infections in Italy rose from 7,344 on 15^th February to 22,275 on 10^th March, whilst daily infections in Greece rose from 237 on 17^th January to 2,629 10^th March.

Economists have predicted that the British pound to euro (GBP/EUR) exchange rate could rise further in the coming weeks to its highest level since February 2020, around the EUR 1.20 mark before potentially falling again.

Jeremy Boulton, market analyst at Reuters stated “the pound has rallied since Brexit and has seen that rally strengthened by the success of the UK’s Covid-19 vaccination programme, but traders have been slow to buy pounds and are bullish now”. However, it seems likely that after reaching above the EUR 1.20 resistance level, the rally could run out of steam.

During the past week, EU countries have attempted to ramp up their vaccination rates, as it’s revealed that the bloc managed to reach one million vaccines in one day during the start of this week.

Eurozone faces double dip recession

Whilst the UK appears to have avoided the predicted double-dip recession, the Eurozone seems to be heading in this direction. Coronavirus lockdowns experiences across the bloc continue to weigh heavy on businesses as the Eurozone looks to increase its vaccination efforts.

Marcel Klok, senior economist at ING stated last month “with lockdowns extended into the new year, it really feels like it is darkest before dawn in the Eurozone. In the first quarter, GDP is all but certain to contract again and the question is now by how much.”

As the EU continues ramping up vaccinations, it’s hoped that economic recovery will begin during Q2. The slow deployment of coronavirus jabs has undoubtedly delayed the reopening of many businesses, which has weighed on the EU’s economic outlook.

In contrast, the outlook for the UK economy has continued to improve following Boris Johnson’s roadmap announcement last month as the UK economy prepares to reopen next month, hoping for all restrictions to be lifted from June.

The Organisation for Economic Co-operation and Development (OECD) has significantly revised its gross domestic product (GDP) growth for the UK in 2021, increasing from 4.2% to 5.1%.

In comparison, the OECD revised Eurozone GDP very marginally to 3.9%, which is just a 0.3% rise. New data reveals that the Eurozone’s economy contracted by 0.7% during Q1 of 2020, which is significantly worse than initially thought. However, the UK’s economy expanded by 1% during the same period.

It has been previously commented that the EU’s response to the coronavirus crisis, could lead to Euroscepticism. Though with a potentially strong economic recovery on the horizon, only time will tell if this is the case.