EURGBP continues to be suppressed during February. Will it rise again?


The first few weeks of 2024 have been laden with discussion, analysis and speculation regarding the forthcoming position of the US economy, largely due to the United States authorities having been the first to speak publicly about any monetary policy changes for the year ahead, as well as a considerable number of perspectives having been aired in the public domain regarding the US Federal Reserve Bank being the first central bank responsible for major currency to lower interest rates - something which actually did not happen.

While the expected announcement of planned reductions in interest rates did not materialise, there has been a lot of comparison between the US economy, and in particular, the US Dollar and Europe's majors, the British Pound and the Euro.

What about the monetary situation and economic outlook on the European side of the Atlantic? Both the European Central Bank and the Bank of England have followed similar, highly conservative monetary policies to that of the Federal Reserve over the past two years, and therefore, it would have been likely that perhaps equal expectations of reductions of interest would ensue if the Federal Reserve had actually proceeded down the route that many analysts expected.

Now, with the US rates remaining the same, could it be that the European and British central bankers will follow the same path? Judging by the result of the European Central Bank policy meeting, which took place on January 25, at which it was decided that rates would remain unchanged, this appears to be the case so far.

Looking at the performance of the EURGBP pair makes for interesting research, given that this chart pattern shows the sentiment within the European Union member states and Britain, all regions where major currencies are the sovereign tender, but without any comparison to the United States.

The Euro began this year by dropping in value against the British Pound after a mild recovery from a previous low.

This downward trend has continued, and although some mainstream media coverage of the British economy has given a relatively pessimistic outlook with some talk of stagnation, the Euro has dipped in value considerably against the Pound, with the EURGBP pair having dipped from 0.867 according to FXOpen charts on January 1, 2024, at the top end of the candlestick to a bottom price of 0.850 this morning.

Indicative pricing only

Aside from a few minor recoveries during day trading during the past six weeks, the EURGBP pair has shown a constant decrease.

In Britain, The Office for National Statistics published the latest figures on UK consumer and producer prices for January today. Inflation during last month edged up to 4.1% from its December level of 4.0%. Meanwhile, output prices are anticipated to show a year-on-year decrease of 0.5%, in stark contrast to the 0.1% increase recorded in the previous month.

Whilst this shows that there is some stagnancy in the economy and that inflation is no longer going down - let's not forget, it was into double figures two years ago - it also does not demonstrate any cause for alarm.

What is perhaps a major factor in the decrease in the Euro compared to the Pound is that the European Union's overall economy is flagging considerably compared to the buoyant US economy, whilst Britain's economic situation is steady and unchanged. A look at the top 100 publicly listed British companies included in the FTSE 100 index would show a very clear indication of stagnation as they have been decreasing in value whilst US stocks on the S&P 500, in particular, have been rising tremendously.

In terms of currency, however, it's the Euro that has suffered from the most lack of confidence, whilst the Pound appears to hover around a stable valuation.

A notable viewpoint regarding the contrasting dynamics between the robust US economy and the sluggishness observed in Europe revolves around a significant advantage enjoyed by the US: its capacity to replenish its labour force, particularly through immigration. This advantage becomes particularly pronounced as the retirement of the baby boomer generation has led to a deceleration in population growth.

In contrast, European nations have leaned towards incentivizing companies to retain their workforce during periods of economic downturn, such as the widespread lockdowns that severely impacted businesses. For instance, the UK implemented a furlough scheme wherein employees were subsidised with 80% of their wages, sustaining them through a period lasting over 18 months.

Clearly, the European economy is still in this situation, and despite the high levels of national debt in the United States, combined with the collapses of some long-established banks such as Silicon Valley Bank at a time when the 2008/9 economic crisis is still relatively fresh in people's minds, the US is powering ahead.

Comparing the Pound to the Euro is an interesting exercise and it does show the British economy is indeed separate from that of mainland Europe, especially the international nature of London's financial centre, which is a veritable powerhouse on the world stage.

Will the Euro recover from this soon, or is it a long-term suppression? Continual viewing of policy, economic decisions and industrial metrics is the way to keep an eye on it.

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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