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EUR / GBP falls back towards 0.8400, targeting 21-month lows, heading for the worst week since March 2020

  • EUR / GBP will end a torrid week trading at lows amid the euro’s overall underperformance on Friday amid European lockdown fears.
  • The pair is back below the 0.8400 level and is targeting 21-month lows.

The EUR/GBP has turned drastically lower on the last trading day of the week, falling from the levels touched in the Asian session above 0.8420 to below 0.8400 as it foresees a test of the 21-month lows touched earlier in the month. the week at 0.8385. The poor performance of the euro is one of the main drivers of the recent slowdown in the EUR / GBP currency pair, amid concerns about a rapid deterioration of the eurozone economy as the pandemic grips the continent.

Austria announced that it will again impose a total lockdown on all people starting Monday for 20 days, with restrictions continuing later for the unvaccinated. In addition, the country said that all citizens should be vaccinated before February 1, 2022 or they would face heavy fines. More worrying from a financial market perspective is that Germany appears to be following closely. Germany’s health minister said on Friday that the health situation in the country had become so serious that a total blockade, even of those vaccinated, could not be ruled out. According to a senior portfolio manager at Swiss asset manager Vontobel, “a total lockdown for Germany would be very bad news for the economic recovery.”

Negative news on the pandemic front in Europe has largely overshadowed a much higher-than-expected German PPI report for October, as well as aggressive comments from outgoing member of the ECB’s Governing Council and Bundesbank President Jens Weidmann. To be fair, Weidmann is a well-known aggressive voter and has spent most of the last decade unable to influence the policy of the ECB, which is dominated by moderate voters, so his comments rarely move the needle on the euro. . Weidmann will leave at the end of the year.

Friday’s slide capped off a steamy week for EUR / GBP. The pair has fallen more than 1.5% from above 0.8500 to current levels below 0.8400, its worst weekly performance since March 2020. Aside from the escalating severity of the European Covid-19 situation throughout For the week, the pair has also been weighed down by strong macroeconomic data from the UK. Earlier in the week, the latest employment report provided early indications that there was no increase in unemployment after the end of the UK government leave scheme in late September and October inflation was higher than expected.

More recently, the October retail sales report released on Friday before the European opening beat expectations, although economists attribute it to consumers submitting their Christmas / end-of-the-year shopping amid supply chain concerns. Currency strategists also touted the ongoing history of divergence between the Bank of England and the ECB as negative. Many expect the Bank of England to start raising interest rates in December, while the ECB’s top policy makers such as President Lagarde have been trying to steer the market against expected rate hikes by 2022. Comments from the ECB’s aggressive line member Jens Weidmann, who is leaving the bank at the end of the year, and comments from the Bank of England’s chief economist, were ignored by the currency markets.

Elsewhere, the tone of Brexit developments has turned more positive this week and most market participants seem to expect the UK and the EU to eventually overcome their differences regarding the implementation of the Northern Ireland Protocol. .

Movements in bond markets, reflecting the deterioration in European economic sentiment, are also likely to be weighing. German 10-year yields fell 7 basis points this week to their lowest levels since mid-September just above -0.35%, while UK 10-year yields fell less than 5 basis points and are still comfortably down. above last week’s lows of 0.82%.

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