Pound-Euro Rate Hits Fresh 8-Month Best

Above: ECB Board Member and Head of the Dutch central bank, Klaas Knot. Image © ECB

• GBP/EUR spot rate at publication: 1.1316
• Bank transfer rates (indicative guide): 1.1020-1.1100
• Specialist transfer rates (indicative): 1.1190-1.1210
• More information on how you can secure specialist rates, here

The Pound-to-Euro exchange rate rallied to a high of 1.1331 on Wednesday Jan. 27, giving the best exchange rate for Euro buyers in 8 months amidst strong technical momentum and comments from a key member of the European Central Bank regarding the strength of the Euro.

The last time the exchange rate reached this level was on May 13 2020.

"The old market adage 'the trend is your friend' is supporting sterling at present," says Adam Ma, a foreign exchange strategist at Western Union. "That could dramatically change if there are any significant problems with Britain's coronavirus vaccine rollout, which is currently ahead of the European Union (EU).

The British Pound has been subject to renewed buying interest heading into the mid-week session, with numerous analysts we follow citing the UK's vaccine rollout as being the primary driver of demand.

"We generally remain supportive of the stronger Sterling view given the impressive vaccine roll out the UK has implemented. Of course short-term virus worries remain a headwind, particularly as UK lockdowns look set to stay for a significant amount of time," says a note from the spot trading desk at JP Morgan in London.

The UK has delivered 6.8 million first doses of a vaccine as of January 26, meaning close to 10% of the population has now received a dose of the vaccine while the EU has so far vaccinated 2.0%.

In an interview with La Repubblica, the CEO of vaccine manufacturer AstraZeneca said the UK was likely to have vaccinated half the population of the UK by March.

Pascal Soriot said "by March, the UK will have vaccinated maybe 28 or 30 million people... the prime minister has a goal to vaccinate 15 million people by mid-February, and they’re already at 6.5 million. So they will get there."

“After some recent strong sessions helped by positive sentiment surrounding the UK’s vaccination efforts, GBP has been further buoyed this week by better than anticipated labour market data which, while highlighting a rise in unemployment to 5%, was less gloomy than many feared," says Joe Tuckey, Analyst at Argentex.

Tuckey notes some significant technical levels are being breached in Sterling exchange rates as, "a long standing technical resistance level of GBP/EUR 1.1280 has been broken to the upside, and for GBP/USD 1.3712 as the resistance level breached.”

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"While we await an update from the US Fed on its rates outlook, dovish sentiment is weighing on EUR. Adding to the bleak economic picture, the ECB is hinting at its concerns over the exchange rate, noting it ‘has the tools to counter appreciation in the currency’. Technically, we should expect this to expedite further acceleration in these momentum moves," says Tuckey.

A leading policy maker at the European Central Bank (ECB) said midweek they have the necessary tools, including interest-rate cuts, to prevent any further strengthening of the euro.

Governing Council member Klaas Knot said the rally in the currency - particularly against the Dollar - could undermine the Bank's efforts to stimulate inflation.

A simplified economic rule is that a stronger exchange rate lowers the cost of imported goods, which in turn surpasses domestic inflationary forces. While low inflation is good for consumers it does pose challenges for the broader economy, for instance by keeping wages suppressed, and the ECB would like to ideally see a stable inflation rate around 2.0%.

"That is something we of course monitor very, very carefully," Knot, said of the Euro exchange rate.

"It’s one of the factors, not the exclusive factor, but one of the factors we take into account when arriving at our assessment of where inflation is going to go," he added.