EUR/GBP eases back from multi-month lows in the 0.8620s, as sterling continues to outperform

EUR/GBP came under selling pressure at the start of Tuesday’s European session, dropping from Asia Pacific highs just to the north of the 0.8650 mark to fresh multi-month lows of just above 0.8620, the lowest the pair has been since March 2020. Over the last few hours, the downwards momentum has subsided and EUR/GBP has been going sideways in the 0.8620s, down about 0.2% or 15 pips on the day.

Driving the day

Though EUR/GBP did not see much of a reaction to the unveiling of UK PM Boris Johnson’s “Roadmap to Recovery”, the UK’s roadmap out of lockdown and back to normality that will hopefully see most pandemic related restrictions lifted by June, traders are citing this as a positive for GBP this Tuesday. Indeed, though FX market price action is fairly tame as markets await Fed Chair Jerome Powell’s Q&A, GBP sits at the top of the G10 performance table.

UK labour market data this morning was largely ignored; the UK economy shed 114K jobs in the final quarter of 2020, more than the 30K expected, but seems to have stabilised in January, with the number of unemployment benefit claimants dropping by 20K in January versus expectations for a rise of 35K. The December unemployment rate rose slightly to 5.1% from 5.0% in November, about a percent above its pre-virus levels.

The path of the UK labour market continues to depend for the most part on what the UK’s furlough scheme; this is the scheme in which the UK government offers to pay a decent proportion of the wages of those who work for businesses that have bee forced shut due to the lockdown, so long as the employer keeps the employee on their payroll. Rishi Sunak is likely to extend the furlough scheme until May when he releases his next budget on 3 March, reported the Times, which ought to keep any sharp rise in unemployment in check until then.

Once the wage support is wound down/withdrawn, ING “suspect that the unemployment rate will rise to around 6-6.5% through the middle of the year, and potentially higher if wage support is removed fairly abruptly in the second quarter.”

Turning to the Euro side of the equations; there have been very little by way of fundamental catalysts aside out of the Eurozone aside from final January Consumer Price Inflation numbers, which came in as expected and in line with the flash estimates released at the end of last month.

Looking ahead, data will play second fiddle to Bank of England and ECB speak for the rest of the week; Bank of England Chief Economist Andy Haldane is speaking at 07:00GMT on Wednesday ahead of the bank’s Monetary Policy Report hearings at 15:30GMT. Bank of England Deputy Governor Dave Ramsden is then to speak at 12:30GMT on Friday. Meanwhile, ECB Chief Economist Philip Lane is to speak at 10:45GMT on Thursday and his comments will be closely watched after ECB President Christine Lagarde hinted that the bank is closely watching longer-dated nominal bond yields on Monday.