GBPEUR creeps closer to the elusive 1.20. The pair is now trading at 22-month highs due to better than expected manufacturing PMI. Businesses are hopeful of an economic recovery in 2022 and less disruption caused by Brexit and supply chain issues.
But can these levels hold firm? Germany’s joblessness rate fell slightly in December; today's figures show an overall improvement in the job market. Inflationary data and the effect of the new variant will dominate as we head into 2022.
This week we have inflation data from Europe’s big 3; France, Germany and Italy. This morning, France’s figure came in at 2.8%, the same as the previous month and slightly below market expectations. ECB’s President Christine Lagarde has already pushed back market expectations of an interest rate hike in 2022. There is more likely to be an interest rate hike in the UK this year.
Meanwhile, Covid infection rates still bear heavily on both currencies. Boris's more lax stance on Covid restrictions has been positive for the pound in the UK. However, staff shortages due to sick days and isolation could cause more problems, especially as schools start to open, putting pressure on the pound.
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