EUR/GBP consolidates around 0.8650 as sterling awaits fresh drivers

EUR/GBP continues to consolidate within this week’s ranges and has not strayed too far from the 0.8650 level, where it currently trades flat on the day. In terms of levels of note; Monday and Tuesday’s approaching the 0.8670 mark are likely to offer continued modest resistance ahead of the psychological 0.8700 level and 21-day moving average just to the north of that at 0.87135. To the downside, technicians note Monday’s 0.8620 low, the psychological 0.8600 level below that and then the recent multi-month lows down at the 0.8540 mark.

Driving the day

Though there has been quite of a lot of Eurozone related economic news and data over the past two days, EUR/GBP appears to be taking its cue from the GBP side of the equation and seems to be in wait and see mode ahead of the release of Thursday’s budget from UK Finance Minister Rishi Sunak. Most of the contents of the budget have already been leaked and in sum; the UK government will continue to offer immediate pandemic relief in the form of an extension to the furlough and business grant & loan schemes designed to keep businesses alive and workers employed through the lockdowns and plans for the post-lockdown recovery phase are also set to be released. Planned corporation and other tax hikes are also on the table, however. Most recently, the FT reported that Sunak is going to use the budget as an opportunity to launch efforts to make London a more attractive destination for IPOs and SPACs in order to compete with other financial hubs.

UK fundamental drivers have otherwise been on the light side, with stronger than expected UK Nationwide House Price Index data largely ignored (the YoY rate of house price growth rose to 6.9% above consensus expectations for a 5.6% reading). Some desks have been arguing that positives regarding the vaccine rollout and reopening, which helped GBP outperform in February, are now “in the price” and GBP will need new positives to drive it higher.

Eurozone News Update

Turning to the Eurozone; as noted, there has been plenty of news to digest but nothing that has inspired any significant shifts in euro sentiment. Starting with the latest in terms of the pandemic; Germany is to reportedly extend lockdown restrictions until 28 March (they had been scheduled to end on 7 March) and is also reportedly set to ask citizens to avoid domestic and international travel over the Easter period in April. Meanwhile, separate reports suggest Italy is going to seek additional Covid-19 stimulus amid a worsening virus outlook. Elsewhere, the French Health Minister signalled that curfew and other restrictive measures are set to remain in place for the next four to six weeks and that 75% of the AstraZeneca vaccines in the country still remain unused. Note that France has just changed its advice regarding the AstraZeneca vaccine, now recommending it for use in over 65s and Germany is expected to soon follow suit, a step that should help the bloc’s sluggish vaccine rollout.

Elsewhere, markets have had plenty of Eurozone data to digest; German Retail Sales numbers for January were very poor, dropping 4.5% MoM (versus forecasts for a much more modest drop of 0.3%) and the latest German labour market report (for February) showed that unemployment increased for the first time in a February since 2014 (by 9K, leaving the unemployment rate unchanged at 6.0%). ING attribute the increase more to “harsh winter weather than the ongoing lockdown”, but caveat that, “despite the small increase, this morning’s headline numbers suggest that the German labour market is still getting through the crisis relatively well”.

Finally, the preliminary estimate for Eurozone Consumer Price Inflation in February was also released during the European morning; the report was mixed, with the EU’s harmonized index showing a faster than anticipated YoY rate of price growth but Core CPI unexpectedly slowing to a YoY growth rate of 1.1% from 1.4% in January. Looking ahead, as a result of rising energy prices, industrial shortages and due to base effects, Capital Economics think that “headline inflation will exceed 2% in the second half of the year… But (that) the ECB will look through this, as inflation is likely to fall next year”.

Looking ahead, the calendar looks quiet in the UK and EU for the rest of Tuesday’s session, ahead of final Services PMIs Eurozone Producer Price Inflation and more ECB speak on Wednesday.