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Pound/Euro supported following BoE announcements

11 Jan 2021

The British Pound is facing risks on Monday, due to the Bank of England’s outlook and negative expectations. However, the British currency remained supported, with the Sterling-to-Euro exchange rate being at 1.1085 at the time of writing. 

Petr Krpata, chief EMEA strategist for FX and bonds at ING , noted, “While we still see room for EUR/GBP to mildly drop below the 0.9000 level [GBP/EUR up to 1.11] this should be limited given the rising risk of further BoE easing.” The British Pound may find support ahead of the country’s coronavirus vaccination programme, although the BoE’s monetary policy may hinder any developments. 

As the market changed its focus from Brexit, the Sterling’s value started to decline. In addition, the currency was also struggling amid the announcement of a third major nationwide lockdown. “This is potentially a relatively bullish story for GBP, if the UK keeps outpacing peers,” strategists noted. Zach Pandl, an economist with Goldman Sachs said, “We are closing our trade recommendation to go short EUR/GBP at a small potential profit, but well short of our initial 0.87 target, which we had thought could be achieved once the UK and EU secured a post-Brexit trade agreement.”

Furthermore, the Euro-to-Dollar exchange rate was being traded at 1.2219, with the Euro beating a retreat from multi-month highs. Traders are being cautious as a result of the COVID-19 outbreak in China's Hebei province, which softened sentiment.