GBP/EUR: Pound Rises on Hopes for HS2 Fiscal Boost

• Pound sterling high further to HS2 high-speed rail announcement
• GBP/EUR: Euro slowed down by negative data on industrial production

The British pound is up against the euro on Wednesday afternoon with the announcement that a project for High Speed Rail in the UK known as HS2 is going ahead encouraging speculation of a big fiscal boost under Prime Minister Boris Johnson. At the same time more disappointing industrial data weighed on the euro.

GBP/EUR was higher by 26 pips (+0.22%) at 1.1888 with a daily price range of 1.1859 to 1.1094 as of 1pm GMT. It has been steady gains since the currency pair held 1.185 with resistance found later at 1.19 on Wednesday. The price gains add to a weekly return of +0.92%.

GBP to EUR: GBP high further to HS2 high-speed rail announcement

The announcement that after a government-initiated review, the HS2 high-speed rail project will go ahead is being taken as a symbol of the upcoming fiscal spending increase in 2020. Proof of the pudding is expected in March when Chancellor of the Exchequer Sajid Javid reveals the new budget.

An increase in Government spending, if done correctly is a positive force on economic growth. Reduced political uncertainty and increased government spending are supportive of Sterling.

EUR slowed down by negative data on industrial production

On Wednesday, Eurozone industrial production missed already downbeat expectations, falling -2.1% month-over-month and -4.1% year-over-year. The misses encompass the disappointing data from Germany particularly, as well as the other big industrial nations in Europe including Italy.

A combination of woeful economic data, the ECB proving unwilling to backtrack from policy accommodation and a strong US dollar has been weighing on the euro since the beginning of the month. As the main counter-currency to the US dollar, the euro has been dragged lower by US-dollar strength. The euro against the dollar (EUR/USD) fell below 1.09 in a test of the lows reached in October.

ECB President Christine Lagarde yesterday told EU lawmakers that “inflation remains some distance below our medium-term aim.” She attributed the slow growth and weak price pressures on global uncertainties and encouraged the use of fiscal policy alongside accommodative monetary policy stance.

Tomorrow the European Commission releases forecasts for counties across the European Union and Germany releases inflation data, which will be followed by German GDP on Friday.

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