GBP/EUR: Will ECB Drag Euro Lower vs. Pound?
  • Pound (GBP) rises on vaccine rollout progress
  • UK CPI +0.6% in December
  • Euro (EUR) looks to ECB
  • No move on policy expected

The Pound Euro (GBP/EUR) exchange rate is advancing on Thursday, extending gains for a second straight session. The pair settled +0.3% at €1.1276, after piercing €1.13 earlier in the session. At 05:15 UTC, GBP/EUR trades +0.1% at €1.1294.

The Pound surged higher in the previous session, boosted by upbeat inflation data. The price of goods in the UK as measured by the consumer price index rose at 0.6% year on year in December, up from 0.3% in November. The slight rise in inflation takes the rate closer to the Bank of England’s 2% target after it dropped sharply as a result of the covid lock down measures.

There is no high impacting UK data due today. The focus will remain very much on covid and vaccination news. Comments from foreign minister that the government hopes to start easing lockdown restrictions in March is lifting the mood.

The UK has the highest covid death rate in Europe and has been under national lockdown since January 5th. However, the vaccine rollout is accelerating and optimism surrounding the distribution of the vaccine and the reopening of the UK economy is lifting the Pound.

The Euro is trading lower versus the Pound, however it is pushing higher versus the US Dollar as investors look ahead to the European rate decision due later today.

The ECB is not expected to adjust policy at this meeting after big moves to policy in December. In the last meeting the ECB increased and extended its PEPP bond buying programme.

Near term risks have increased since the last ECB meeting as covid numbers continue rising and lockdown restrictions are tightened and extended across the bloc. Germany the largest economy in the Eurozone extended its lockdown restrictions again justthis week.

However, medium term risks are easing with the rollout of the vaccine and growing optimism surrounding US  stimulus. The ECB could sound more upbeat at the meeting, potentially lifting the Euro.