EUR / GBP falls back from multi-month lows at 0.8625 as the pound continues to outperform

• EUR / GBP came under selling pressure at the start of the European session on Tuesday, falling from above 0.8650 to a new multi-month close near 0.8620.
• Traders have been citing the UK’s “Roadmap to Recovery”, released Monday, as positive.

The pair EUR/GBP came under selling pressure at the start of the European session on Tuesday, falling from Asia Pacific highs just north of 0.8650 to fresh multi-month lows of just over 0.8620, the lowest level since March 2020. In recent years hours, the bearish momentum has eased and the EUR / GBP has been trading sideways at 0.8620, down around 0.2% or 15 pips on the day.

Driving the day

Although the EUR / GBP didn’t see much of a reaction to British Prime Minister Boris Johnson’s presentation of the ‘Roadmap to Recovery’, the UK’s roadmap out of the lockdown and back to normal will hopefully will see most of the pandemic-related restrictions lifted in June, traders are citing this as positive for the GBP this Tuesday. In fact, while currency market price action is fairly subdued as markets await questions and answers from Fed Chairman Jerome Powell, the British pound is at the top of the G10 performance chart.

UK labor market data this morning was largely ignored; The UK economy shed 114,000 jobs in the last quarter of 2020, more than the 30,000 expected, but appears to have stabilized in January, and the number of applicants for unemployment benefits dropped by 20,000 in January versus expectations for an increase of 35,000. December’s unemployment rate rose slightly to 5.1% from 5.0% in November, roughly one percent above its pre-virus levels.

The trajectory of the UK labor market remains largely dependent on the UK leave scheme; This is the scheme in which the UK government offers to pay a decent proportion of the wages of those who work for companies that have been forced to close due to closure, provided the employer keeps the employee on their payroll. Rishi Sunak is likely to extend the leave plan until May, when he publishes his next budget on March 3, the Times reported, which should keep any sharp rise in unemployment in check until then.

Once wage support is reduced / withdrawn, ING “suspects that the unemployment rate will rise to around 6-6.5% by mid-year, and potentially more if wage support is removed quite abruptly in the second quarter” .

Moving on to the euro side of the equations; There have been very few fundamental catalysts other than the euro zone, apart from the final consumer price inflation figures for January, which were presented as expected and in line with the preliminary estimates released late last month.

Looking ahead, data will play a secondary role vis-à-vis the Bank of England and the ECB will speak for the rest of the week; Bank of England Chief Economist Andy Haldane will speak at 07:00 GMT on Wednesday before the bank’s Monetary Policy Report hearings at 15:30 GMT. Bank of England Deputy Governor Dave Ramsden will speak Friday at 12:30 GMT. Meanwhile, the ECB’s chief economist, Philip Lane, will speak at 10:45 GMT on Thursday and his remarks will be closely followed after ECB President Christine Lagarde hinted that the bank is closely watching the yields of longer-term nominal bonds on Monday.