GBP/EUR: Euro Steady vs. Pound As ECB Comes Into Focus

The British pound is higher against the euro on Tuesday.

  • EU leaders agree on Recovery Fund & 7-year budget
  • German DAX stock index erases 2020 losses
  • Market focus shifts to company earnings / US stimulus
  • UK borrowing drops in June but stays elevated

GBP/EUR was up by 24 pips (+0.21%) to 1.1084 as of 3pm GMT. This week the pound-euro exchange rate is up by +0.75%.

The currency pair held 1.105 before moving on to 1.11 and holding steady there with support at 1.108. Yesterday it gained +0.60%.

GBP: Pound rebound continues for 2nd day

The pound continued its recovery move higher after last week’s losses. It’s not yet clear whether the move has any legs without a clear fundamental driver. Gains over the euro appear to be more a function of profit-taking after the recovery fund agreement than any underlying strength in Sterling.

The markets’ focus has shifted to US company earnings as well as a new US fiscal stimulus package, which lawmakers have returned to Capitol Hill to debate.

UK public sector borrowing came down slightly in the June figures as the economy began to reopen, but can be expected to spike again in the July figures after the new spending announcements made by chancellor Rishi Sunak the other week.

EUR: Leaders agree on Recovery Fund

After days of deliberation, EU leaders struck a deal on an EU Recovery fund. The EU Commission President Ursula von der Leyen described it as a ‘pivotal moment in EU history’. The creation of the fund will see European countries borrow together for the first time. Optimism around the deal saw German blue-chip stocks erase 2020 losses.

The €750 billion touted by the European Commission was kept but required sweeteners on rebates in the 7-year budget for so-called ‘frugal nations’ that were reluctant to tie their economic fate to more indebted nations. In the end, €390 billion (of the 750 billion) which will be borrowed in capital markets by the EU Commission, will be dished out in grants with the remaining in loans.

The euro had largely priced in the move and tipped lower against the pound, although it did challenge 2020 highs versus the dollar (EUR/USD above 1.15).