EUR/GBP stabilised around the 0.8650 mark as PM Johnson announces “Roadmap to Recovery”

• EUR/GBP is consolidating around the 0.8650 mark, unmoved by UK PM Johnson’s reopening plan announcement.
• GBP remains underpinned by reopening and vaccine optimism, but EUR is being supported by decent German IFO data.

EUR/GBP is consolidating around the 0.8650 mark, roughly in line with last Friday’s lows and closing levels, amid a lack of any important fundamental developments. GBP remains underpinned by vaccine rollout and reopening optimism, hence why the pair is a little lower on the first trading day of the week, whilst decent German IFO data is preventing any more significant moves to the south for now. The recent announcement of UK PM Boris Johnson’s economic reopening plans went as expected (and in line with press leaks) and did not shift the dial much for GBP and EUR/GBP currently trades broadly flat on the day.

UK’s Roadmap to Recovery

The main news out of the UK on Monday was UK PM Boris Johnson’s public announcement of the government’s economic reopening plan, called the “roadmap to recovery”. In true UK government fashion, the seemingly most important details of the plan have already been leaked to the press over the weekend, so Johnson’s announcement did not contain any surprises.

The roadmap is split into four distinct stages, each a minimum of five weeks apart. The first stage is the reopening of schools and the removal of some care home visitor restrictions on 8 March followed by the removal of the “stay at home” guidance from 29 March – after this date, the rule of six will apply to outdoor gatherings. The second stage, which is likely to begin in April, is likely to entail the reopening of non-essential retail and outdoor hospitality services. Stage three, likely to come in May, will see the return of more normal hospitality service and stage four is likely to authorise the reopening of the domestic tourism industry.

To progress to the next stage, four key tests must be met; 1) the vaccine rollout must be going ahead as planned, 2) the vaccine must be contributing to a reduction in transmission and hospitalisations, 3) cases must not rise so high that hospitals are overwhelmed and 4) no new variants must have significantly changed the risk assessment. Some political commentators were surprised by the fact that the UK government did not explicitly mention falling Covid-19 cases as a criteria for progression. Others have retorted that with the death rate per infection expected to plummet given the fact that most of the country’s most vulnerable members have already been vaccinated, a higher prevalence of the virus amongst those who are not at a high risk of death ought to be tolerated in order to reopen the economy faster.

Indeed, government critics of this mind from within the Conservative party continue to put pressure on the PM to reopen faster; Conservative MP Steve Baker, chairman of the Covid Research Group has called for all restrictions to be removed from April when all over 50s are hoped to have been vaccinated by. All this talk of reopening appears to have boosted sentiment towards GBP on Monday, with the currency amongst the better performs in the G10 on the day, despite the fact that the reopening plan being put forth might not be as aggressive as some had hoped.

German IFO recap

Turning to the Eurozone; not as strong a performer on the day as GBP, but the euro remains relatively well underpinned, at least versus USD and CHF, following a strong February German IFO survey release during the European session. The survey, which is seen as the best lead indicator for the German economy, rose this month, with the headline index number rising to 92.4 from 90.3 last month, the strongest monthly increase since July last year. Meanwhile, both the Current Conditions and Expectations subcomponents improved also, the former rising to 90.6 from 89.2 and the latter rising to 94.2 from 91.5. According to ING, “the Ifo index shows is that German businesses have followed financial markets in looking through negative short-term effects from lockdown measures and slow vaccinations”.