Euro to Pound Exchange Rate Investors Underwhelmed by Modest European Central Bank Action
Updated 15:00 GMT 12/03/2020:
This week’s highly anticipated European Central Bank (ECB) policy decision was finally held earlier, and the bank surprised investors by leaving all rates frozen. This limited the Euro to Pound Sterling (EUR/GBP) exchange rate’s strength today.
— Faisal Islam (@faisalislam) March 12, 2020
The ECB was widely speculated to cut one of its key rates. As a result, some investors were underwhelmed by the bank’s lack of action compared to the Bank of England (BoE) and Federal Reserve.
Some analysts suggest that markets don’t expect fiscal stimulus policy from Eurozone governments, which is causing concern. According to Benjie Creelan-Sandford, Equity Analyst at Jeffries:
‘without follow-through from governments on fiscal measures to assist the most challenged parts of the economy, the market is likely to remain fearful about spillover impacts and eventual real losses for banks.’
EUR/GBP briefly jumped to a new four-month-high of 0.8907 during the policy decision, but has since slipped and trends closer to the level of 0.8830 at the time of writing.
(Originally published 09:29 GMT 12/03/2020)
Euro to Pound Exchange Rate Reaches New Highs despite UK Budget News
The Euro to Pound Sterling (EUR/GBP) exchange rate briefly dipped yesterday, as Pound (GBP) investors reacted to the UK budget. However, jitters over the global spread of coronavirus Covid-19 are limiting the Pound’s appeal against a strong Euro (EUR).
Following last week’s modest advances, EUR/GBP is seeing more solid gains this week so far.
EUR/GBP opened this week at the level of 0.8652 and has gained around a pence and at half. EUR/GBP touched on a four-month-high of 0.8835 earlier and is currently trending just below those highs.
The Euro’s strength this week is a big part of the Euro to Pound exchange rate’s advances. However, if the upcoming European Central Bank (ECB) policy decision surprises markets it could lead to a shift in Euro movement.
Euro (EUR) Exchange Rates Continue Advances despite European Central Bank (ECB) Anticipation
The Euro remains one of the market’s most appealing major currencies in the face of global coronavirus panic.
This is due to the shared currency being a popular funding currency, as well as the European Central Bank’s (ECB) monetary policy already being very loose.
Expectations for further easing from the ECB are fairly low compared to rate cut bets on other central banks. As a result, the Euro is capitalising on rival weakness.
However, markets are still betting on some kind of easing from the ECB at today’s anticipated policy decision. There is also speculation over the tone the bank will take regarding the coronavirus outbreak.
According to Ross Hutchison, Rates Fund Manager at Aberdeen Standard Investments:
‘The ECB meeting will be hugely important, but it’s very difficult to call what kind of easing is likely,
A rate cut is plausible … but I don’t see that as an effective policy option.’
Pound (GBP) Exchange Rates Struggle to Capitalise on Coordinated Stimulus News
Britain’s economy received a double-whammy of stimulus yesterday. Not only did the UK government ramp up spending in the latest budget presentation, but the Bank of England (BoE) announced an emergency interest rate cut.
The BoE cut rates by 50 basis points, down to 0.25%. However, despite the importance of this rate cut, it is uncertain if the bank will ease policy further. Analysts at Commerzbank believe that no further expansionary steps are likely for the time being.
While these stimulus measures offered the Pound a brief boost in support though, the Pound’s rebound was short-lived.
Due to news that the World Health Organisation (WHO) had declared coronavirus as a global pandemic, risk-aversion remained in full force. This meant investors continued to prefer the currently safe haven Euro over the Pound.
Euro to Pound (EUR/GBP) Exchange Rate Awaits European Central Bank (ECB)
Yesterday’s UK stimulus developments were highly influential for the Pound and the Pound outlook. However, today’s European Central Bank (ECB) policy decision is also set to be one of the week’s biggest events.
The ECB is expected to ramp up stimulus and loosen policy slightly. As policy is already loose, markets don’t expect a big change.
As a result, a surprising stance from the ECB or President Christine Lagarde could have a notable impact on the Euro’s current appeal.
If the bank ramps up concerns about the Eurozone’s economic outlook amid the coronavirus outbreak, the Euro’s recent appeal could take a hit. If the bank’s position is relatively unsurprising though, the Euro may continue to benefit from safe haven demand.
Comments from the ECB and President Lagarde, as well as the Euro’s strength on safe haven demand, is likely to keep driving the Euro to Pound (EUR/GBP) exchange rate for the remainder of the week.