GBP/EUR Bounces Back After Touching Monthly Low

GBP/EUR is in bullish mood on Tuesday, after touching the lowest level in over a month yesterday. The pair is currently trading at 1.1683, up 0.18% as of 9:35 AM UTC.

Markets in the UK, France, and Spain are closing early on Christmas Eve, while German, Italian, and Swiss markets are closed all day.

The pound’s rebound might be driven by technical analysis reasons amid a lack of relevant fundamentals. The pair has lost about 2.80% after the post-election rally, having one of its worst weeks in years. At the moment, investors might be taking a pause to continue the bearish stance on fresh worries about a potential no-deal Brexit. UK Prime Minister Boris Johnson surprised economists when he voiced his intentions to rule out any attempt to extend the Brexit transition deadline beyond December 2020.

The pair is currently advancing also because investors are reevaluating the European Central Bank’s (ECB) aggressive stimulus measures. The ECB’s interest rates might keep at a record low for years, but this approach might become counterproductive, according to Klass Knot, an ECB governing council member. He told Dutch newspaper De Volkskrant:

“I do not have a crystal ball, but I cannot rule out that the current low interest rate environment could last another five years.”

“This worries me, because temporarily low interest rates are something quite different from persistently low interest rates,” he added.

Knot, who is president of the Dutch central bank, has repeatedly criticized the ECB’s easing policies. He said that the current low rates might push investors to take excessive and unnecessary risk, while younger generations might feel forced to boost their savings. This is not desirable from a macro-economic viewpoint, the official noted. He added:

“And it is also an example of how our low interest rate policy may eventually shoot itself in the foot. If people start saving more in response to the low interest rates, this will add further downward pressure on inflation.”

The next support level for GBP/EUR is 1.1617. If the pair breaks it, then it might decline below the psychological level of 1.1600.

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