The pound sterling is at its highest point this year against the euro. What’s going on in the background? This morning, data from Barclaycard, a major British credit card issuer, revealed that consumer spending in July was 11.6% above the level of July 2019. In addition, a report from BRC (British Retail Consortium), an association of British retailers, shows that spending in physical stores increased by 6.4% compared to the same month last year.

So British consumers are doing well. It is encouraged by the fact that restrictions to counter coronavirus have been lifted in the UK. Barclaycard goes on to say that the entertainment sector in particular is doing a pretty good job and, for the first time since the pandemic, is exceeding the 2019 level.

The rate of EUR / GBP is around 0.8460, the lowest point of the year. This is also the highest point for the pound against the euro since February 2020.

Problems in the euro area

In sharp contrast to the UK is the eurozone, Germany to be precise, where the ZEW index was published today. This showed that sentiment dropped surprisingly harder than expected. The index of expectations now stands at 40.4, while it stood at 63.3 a month ago and this time it was expected to stand at over 56. The reason behind this is the spread of the Delta variant and in particular the response of policy makers.

The UK has clearly made a different choice of measures than most European countries and is also benefiting from the fact that it is ahead of the number of vaccinations given.

One factor that raises the British pound in the light of the good data of recent times is a well-functioning economy. It leaves the central bank, the Bank of England, room to tighten policy. At the same time, high consumer spending is a driver of inflation in the UK, which was still relatively low at 2.5% in June.

The pound sterling is now facing a psychological resistance at the same level as in early april against the euro. We believe that the pound still has room to rise, or rather, the euro has room to fall against the pound. Few investors believe that the ECB plans to raise interest rates even before the resignation of its current president (probably 2027). On the other hand, the Bank of England is more flexible in Word and deed. Short-term interest rates in the UK are already higher than in the euro area and are expected to rise faster.

The euro is weak against the GBP and is below the average rate of the last 200, 100 and 55 days. It shows that the momentum is negative. That’s a classic bearish pattern for the euro.