Pound to Euro Exchange Rate Floundering as UK Government Toughens Stance
The losses seen in the Pound Sterling to Euro (GBP/EUR) exchange rate yesterday are likely to stay for now. The Pound (GBP) is seeing a fresh round of weakness today as investors digest the latest news from Britain’s government.
Sterling has continued to see gloomy trade this week, following last week’s sharp losses. GBP/EUR fell a whopping five cents from the level of 1.1556 to 1.1035 last week.
GBP/EUR has lost a further half a cent this week so far. Overnight, GBP/EUR touched on a fresh 6-month-low of 1.0933. The pair is trending modestly above these lows at the time of writing this morning.
Investors are reacting to the British government’s slightly stricter stance on the coronavirus pandemic. As a result, the Pound is sliding even lower today. Meanwhile, the Euro continues to benefit from safe haven demand despite the Eurozone’s own coronavirus outlook.
Pound (GBP) Exchange Rates Knocked as Government Ramps up Rhetoric
The UK government, recently criticised for not taking enough action on the coronavirus outbreak, toughened its approach yesterday.
The government has made some fresh restrictions and suggested citizens avoid socialising. As a result, analysts now predict that the pandemic will begin to have a stronger negative impact on Britain’s economy.
With the domestic coronavirus outlook worsening, Bank of England (BoE) interest rate cut bets are also rising further.
Analysts are increasingly predicting more action from the BoE at its meeting next week. According to Analysts at ING:
‘We could potentially see more BoE stimulus coming through soon – for example a 15 basis point rate cut and potentially £100bn+ Gilt buying QE (quantitative easing) scheme,’
Euro (EUR) Exchange Rates Continue to Benefit from Safe Haven Demand
The Euro (EUR) has been among the currencies to gain most strongly from the market’s rush to safe havens. This is despite the Euro not traditionally being seen as a safe haven currency.
The Euro is popular as a funding currency, and its biggest rival the US Dollar (USD) has seen bursts of weakness. These factors are keeping the Euro more appealing as a safe haven than usual.
The US Dollar (USD) saw fresh losses yesterday as markets reacted to another emergency interest rate cut from the Federal Reserve. This led to stronger Euro performance yesterday.
While the Euro’s appeal has softened slightly since then, it is holding near its best levels against the Pound.
For the time being, the Euro is not being hit too hard by the surging number of coronavirus cases in the Eurozone, particularly in Italy.
Pound to Euro (GBP/EUR) Exchange Rate Outlook to be dominated by Coronavirus
Some typically influential UK and Eurozone stats will be published tomorrow. This includes Eurozone trade balance data and inflation rate results.
The Eurozone’s inflation rate could influence European Central Bank (ECB) speculation slightly if it surprises. Overall though, the data is likely to be largely brushed over amid the increasingly intense coronavirus focus.
If the UK government continues to ramp up measures to delay the spread of Covid-19, concerns about Britain’s economic outlook may deepen.
This could keep the Pound under pressure and make it harder for GBP/EUR to recover from its recent lows.
The Euro, on the other hand, will continue to be driven by safe haven demand and rival strength. If its rival the US Dollar (USD) sees a surge in demand the Euro could weaken again.
Overall, upcoming key data is likely to be overlooked, as the developing coronavirus pandemic remains the biggest focus for the Pound to Euro (GBP/EUR) exchange rate outlook.
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