The EURGBP has moved lower into the trading range which held prices from June and the pound will look to recover from recent losses. Sterling has been under pressure after the risk of a No-Deal reappeared and the U.K. has also seen a return to increased virus restrictions, with talk of a 14-day “circuit-breaker” lockdown in mid-October.
Europe has seen its own rise in virus cases and this has capped the Euro rally. The threat of lockdowns and further economic damage looms over the U.K. and Eurozone as we move deeper into flu season with October usually being the start of rising case numbers.
Today sees the release of the German IFO Business Climate Index for September. The figure is a survey of 9,000 German businesses and the headline figure is expected to be a gain of 93.8 from 92.6 last month. The number is usually a market-mover for the Euro but it’s hard to get excited about business conditions in any country and it would take a big deviation to move the EURGBP. Unicredit only sees a slight increase from an improvement in current conditions, rather than the future.
Later in the day, we have a speech from Bank of England Governor Andrew Bailey. The bank noted in its recent policy minutes that they had already discussed the potential for negative interest rates, which could come into play by year-end. This has added to the pressure on sterling caused by the stalemate on Brexit and it would likely require some negative economic numbers from Europe to inspire a real recovery in the pound before the October Brexit deadline.
EURGBP has dropped back into the recent trading range, which held prices between 0.8867 and 0.9175. The move could be significant if the pair can get back through the 0.9100 level to test the 0.9050 where the 50-day moving average rests. I’d be neutral on the pair for now until we see how it behaves at the support levels.
