The pound to euro is poised at resistance level at 1.1634, as business activity improves, GDP figures increases, and the economy reopens after the lockdown.
British Pounds to Dollars Poised to Surge Higher
The pound-to euro currency rate surged higher to 1.18 in April but slipped lower to the 1.16 levels in May. The United Kingdom has reopened its economy, and lockdown restrictions announced by Prime Minister Boris Johnson are lifted slowly. Business activities are improving, and the job market is getting better.
The GBP/EUR currency pair closed at 1.1634 levels last week. However, if the pound to euro currency breaks past the resistance at the 1.1655 levels, it may surge higher to April 2021 high.
A weakness in the pound to euro currency rate may bring it lower to 1.1550 levels or the next support at 1.1480 level. The pound to euro today has been one of the best performing G10 currencies against the dollar in 2021. It is up 3.3% year on year. The high vaccination pace in the UK has helped the pound to gain strength.
The stock market tends to enter into a lull mode in the summer months. The pound to euro moves along with the equity markets, and currency investors are moving to the sidelines during this warm season to avoid a downfall in their investment
Forex Markets Benefit from Reopening after Lockdown
The United Kingdom was one of the worst affected when the pandemic struck the world in March 2020. But, the rollout of vaccines has helped to restore the economy. Hospitality venues are opening up, which is essential for the UK economy and foreign currency exchange to recover. Shops, restaurants, and pubs are reopening slowly.
Restrictions are eased, with infection rates falling lower. The number of deaths has come down, and the economy may improve further, say experts. It is expected that the final easing of the restriction may happen by June 21.
UK GDP Grows 2.1% in March 2021
GDP month on month estimate has grown by 2.1% in March. The improved GDP figures have boosted the confidence of people in the United Kingdom. The sterling to the euro will strengthen with the improvement in GDP figures. The service sector has gone up by 1.9%, and the construction sector has grown by 5.8% in March 2021. Schools have reopened, which is another positive factor for the growth of the economy.
Though the GDP has contracted for the first quarter, the improvement seen in March GDP figures is the fastest monthly growth, last seen in August 2020. The Office for National Statistics has stated that the economy has contracted by 1.5% for the quarter ended March 2021.
Q1 GDP has come down by 6.1% year on year. Business investment and household consumption have come down. Increased government spending has added to the liquidity in the country and has uplifted the forex markets. Imports have come down more sharply than exports. Retail sales have fallen with lockdown restrictions in the country. These factors have brought down GDP growth in the first quarter.
UK Job Market Gets Better
The unemployment rate has gone down to 4.8% for the quarter ending March 2021. Despite tight lockdown, hiring has gone up in April too. The unemployment rate is falling for the third consecutive time. Job subsidies have helped the labor market during the onset of the coronavirus pandemic.
The furlough scheme has helped to protect the people who went out of employment. Though job opportunities cannot be expected to improve rapidly, the job sector will slowly recover, say experts. Young people have been hit hard by the pandemic. Shops, pubs, and restaurants were partially open for most of the year, in which most young people under 25 years have lost their jobs.
The furlough scheme, which has helped businesses pay wages to their staff, has protected more than 11 million jobs. The scheme is to continue till September. The number of employment jumped by 84,000 for the first quarter ended 2021. Unemployment has gone down by 121,000.
European Union Picking up Growth
In the forex markets, the euro has gone up more than 0.6% against the pound last week.
The European Union faltered in the early days of the second wave of the coronavirus. The vaccination program started at a sluggish speed, and economic activity dipped in the initial stages. The vaccination drive in the eurozone is picking up pace now, which has brought a rebound in economic activity.
France and Germany have brought a ban on British travelers from entering their countries. Travel is allowed for essential purposes only, which is a negative for the sterling.
GBP/USD to Strengthen with Increase in Interest Rates
Bank of England may bring in higher interest rates over the coming months as sentiment improves in the UK economy. It may strengthen the pound further say, analysts.
Gertjan Vlieghe, a Bank of England member, has hinted that a rate hike can be expected in the UK. However, the rising coronavirus cases in India are a cause of concern to those in the United Kingdom. Health Minister Matt Hancock has cautioned the people, despite the relatively low number of infections in Britain.
