GBPEUR is at 21-month highs, but could that change?
Up until recently, the market had been expecting an interest rate hike in December; however, the Bank of England’s Chief Economist, Andy Haldane, appears to be looking for reasons not to hike rates. He explained that our monetary policy would not directly resolve the supply side issues affecting inflation.
The pound is predicted to come under further pressure against the Euro. Barclays believes that a sustained recovery is only likely in the second half of 2022. Slowing economic growth and ongoing concerns about the EU-UK post-Brexit trading relationships will limit the ability for Sterling to recover in the near term. And despite this recovery, GBPEUR could end next year trading around the levels we are currently seeing.
At the moment, it is the Euro that is under pressure. Rising covid-19 cases in Europe have forced the Austrian and German governments to impose lockdowns leading to riots and protests. The weekend’s activity saw protests in The Netherlands, Italy, Austria, Croatia, and France, with a threat of further civil unrest if politicians continue to ignore the voice of its voters.
This week the US Dollar was propped up by rising speculation that the FED may need to trim its bond-purchase programme at a faster pace and make a move to raise interest rates more quickly to curb rising inflation.
However, as long as the European Central Bank continues to be soft on its monetary policy and covid-19 cases continue to rise in Europe, causing countries to impose lockdowns, we will see the Euro continue to fall.
As we enter the winter months and we may well see a similar scenario in the US. If covid-19 infections begin to rise we could see some of the excellent recent gains reverse. We are currently trading at levels last seen in June 2020. We are 8% higher than the lows we have seen this year.