EUR/GBP probing annual lows in 0.8380s weighed by risk appetite, central bank poliy divergence By Frank_Macro EURGBP ECB BOE Coronavirus
has slipped under 0.8400 to probe annual lows in the 0.8380s. That translates into on the day losses of about 0.3%. The pair has been under heavy selling pressure since hitting highs last week in the 0.8550 area and at current levels, trades nearly 2.0% lower from these peaks.
Meanwhile, the fact that the UK health case system currently has not yet shown any signs of being overwhelmed despite rampant Omicron infection in the country means that, so far, UK policymakers have refrained from putting England back into lockdown. Prior to the recent surge in risk appetite, the UK had been viewed as the Omicron epicenter in Europe, a perception that had weighed on GBP at the time and contributed to EUR/GBP hitting highs near 0.8600 earlier in the month.
The bank said it would continue with APP purchases for as long as necessary, but if inflation continues to surprise to the upside in 2022, it seems likely these might be ended by the end of the year. A hot flash December inflation report out of Spain on Thursday raises the risk of an upside surprise from next week’saggregate flash December inflation estimate. This increases the likelihood of upside surprises in 2022.
The ECB is clearly on the road to monetary policy normalisation, as are other major central banks, but even if inflation surprises do force it to unwind stimulus at a faster pace, the bank remains well behind the BoE in this regard. Thus, any potential hawkish ECB pivot may struggle to result in lasting EUR/GBP strength. While holiday-thinned trading conditions mean that a sustained downside break of the annual lows in the 0.
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