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Pound to Euro (GBP/EUR) Exchange Rate Falls as New UK Lockdown Restriction Fears Drags on Sterling

January 4, 2021 - Written by John Cameron

GBP/EUR Exchange Rate Sinks on Fears of New UK Lockdown Restrictions

The Pound to Euro (GBP/EUR) exchange rate fell by -1% today, with the pairing currently trading around €1.105.

Sterling suffered today following comments from Prime Minister Boris Johnson, who said that there was a case for further and more severe Covid-19 lockdown restrictions.

Today will see Number 10 announce further updates on restrictions, leaving GBP investors concerned that this could further limit the UK’s economic recovery.

UK Covid-19 cases also recorded a new daily high, with cases now edging closer to 60,000.

In UK economic data, today saw the release of December’s latest Manufacturing PMI, which beat forecasts and rose to 57.5.

Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, commented on the data:

‘After a severely turbulent year, UK makers still have a great deal to worry about. Job numbers continue to fall, and material shortages have resulted in the highest cost inflation since 2018. The sector is holding its breath until the terms of the new deal are fully understood and whether new business can be sustained in the same way in a post-Brexit marketplace.’

Euro (EUR) Heads Higher as Eurozone Manufacturing PMI Rises in December

The Euro (EUR) rose against Sterling today following the release of the latest Eurozone Manufacturing PMI for December, which rose to 55.2, its highest level since May 2018.

Chris Williamson, the Chief Business Economist at HIS Markit, commented on the data:

‘The economy consequently looks set to be hit by the pandemic in the fourth quarter far less than the unprecedented decline in the second quarter thanks to the resilience of manufacturing, and an improvement in business expectations for 12 months ahead to the highest for almost three years suggests that momentum can be sustained in 2021. Rising virus case numbers are nevertheless likely to mean trading conditions remain challenging in the near-term and therefore constrain growth.’

As a result, EUR investors are becoming more optimistic about the Eurozone’s economic recovery, with Covid-19 vaccines also proving a glimmer of hope for 2021.

Additionally, with Brexit in the rear-view mirror, EUR traders are more optimistic that a degree of stability will return to the Eurozone and throughout Europe.

GBP/EUR Forecast: Could the Euro Rise as the Eurozone’s Economic Outlook Improves?

Euro (EUR) traders will be eyeing tomorrow’s publication of December’s German Unemployment Rate.

However, if this continues to rise, we could see the EUR/GBP exchange rate suffer.

Tomorrow will also see the release of Germany’s Retail Sales report for November.

Any improvement in Germany’s retail sector, however, would prove EUR-positive.

The GBP/EUR exchange rate will continue to be dictated by Covid-19 lockdown news.

As a result, we could see Sterling suffer if Downing Street announces any further and intensified lockdown restrictions this evening.

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