Pound rallies against euro as French data disappoints

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·2 min read
French President Emmanuel Macron attends a meeting during a visit at the headquarters of the local CAF (French family allowance public services) on January 5, 2021 in Tours, central France, to promote a reform which ensures alimony payment by the state in the event of unpaid bills. (Photo by LOIC VENANCE / POOL / AFP) (Photo by LOIC VENANCE/POOL/AFP via Getty Images)
French President Emmanuel Macron attends a meeting during a visit at the headquarters of the local CAF (French family allowance public services) on January 5, 2021 in Tours, central France. Photo: Loic Venance/POOL/AFP via Getty Images

The pound rallied against the euro on Friday morning, breaking out of a holding pattern it had traced for most of the week.

Sterling was up half a percent against the euro by 9.30am on Friday, trading at €1.1108 (GBPEUR). It marked the highest level for the pound since Monday this week.

Britain’s currency jumped against the EU’s in early trade in London. Data published on Friday morning showed worse-than-expected consumer spending in France and a poorer trade balance in Germany than economists had hoped for.

The pound rallied against the euro in early trade. Photo: Yahoo Finance UK
The pound rallied against the euro in early trade. Photo: Yahoo Finance UK

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said Friday’s data — which also included industrial production figures in both France and Germany — showed the “French economy took the virus’ return on the chin”. Consumer spending declined by almost a fifth in November and industrial production dropped by 0.9%. France returned to lockdown at the end of October.

The euro was falling against the dollar on Friday morning. The single currency was down 0.3% against the dollar to $1.2229 (GBPEUR=X).

In the UK, there was little in the way of meaningful developments in either the COVID-19 pandemic or Brexit overnight — two narratives that have dominated the path of UK-assets over the last 12 months.

UK prime minister said on Thursday night that almost 1.5m people in Britain had now been vaccinated against COVID-19. The government also announced that negative COVID-19 tests will also be made mandatory for travellers arriving in the UK.

Meanwhile, Marks & Spencer (MKS.L) warned that the Brexit free trade agreement would “significantly” impact its business in Ireland and the EU.

Watch: Euro zone contraction deeper than thought in Dec

READ MORE: Stocks head higher on Democrat stimulus and vaccine hopes

While the pound was higher on the day on Friday, it was set to record a weekly loss against both the euro and the dollar.

“Tighter economic restrictions and negative interest rate speculation has weighed on sterling, which has shed most of its post-Brexit trade deal gains already,” said George Vessey, a currency strategist at Western Union.

John Wraith, a strategist at UBS, said earlier this week that the rollout of the vaccine was the most important factor driving the path of the pound.

“If and when vaccination progress translates to material momentum towards a lifting of restrictions and sustainable return to economic normality, we continue to expect yields to rise and the curve to bear steepen,” he wrote.

Sterling was up slightly against the dollar on Friday morning, gaining 0.2% to reach $1.3586 (GBPUSD=X).

Watch: European markets rise despite further covid-19 lockdowns