EUR/GBP Exchange Rate Falls as Eurozone Struggles to Ward off Financial Crisis
The Euro Pound (EUR/GBP) exchange rate dipped by -0.3% today as Eurozone finance minister have just two weeks to come up with a unified response to the coronavirus crisis. The pairing is currently trading around £0.903.
This follows yesterday’s six-hour meeting which saw 27 leaders throughout the Eurozone debated ways to approach the crisis. Nine countries, which included Italy and Spain, requested ‘coronabonds’ to cushion the negative impact of the virus.
Spain’s Prime Minister Pedro Sanchez warned:
‘If we do not propose a unified, powerful and effective response to this economic crisis now, not only will the impact be harder, but its effects will last longer and we will be jeopardising the whole European project.’
The Euro (EUR) has come under increasing pressure as the various leaders struggled to find a cohesive response to the bloc’s ongoing crisis, with Italy and Spain continuing to be the two hardest hit by the coronavirus.
Yesterday’s release of Germany’s consumer confidence gauge for April, which plummeted to a worse-than-expected 2.7, has also left single currency traders and analysts concerned for the Eurozone’s largest economy.
Rolf Bürkl, consumer expert at GfK, commented:
‘In light of the current development, we are withdrawing our consumer forecast of one percent growth for 2020. Retailers, manufacturers and service providers must prepare for a recession.’
Pound (GBP) Rises as Improving Investor Sentiments Boosts Sterling’s Appeal
The Pound (GBP) continued to gain on the Euro (EUR) after yesterday saw the Bank of England (BoE) hold its interest rates at an all-time low of 0.1%.
The Bank of England (BoE) stated:
‘The spread of the disease and the measures that are likely to be needed to contain it have evolved significantly. The economic consequences of these developments are becoming more apparent and a very sharp reduction in activity is likely … [T]here is a risk of longer-term damage to the economy, especially if there are business failures on a large scale or significant increases in unemployment.’
Sterling has continued to benefit from an improvement in investor sentiment as global markets have shown some signs of recovery this week. This has also corresponded with a heightened demand for risky assets following the US Federal Reserve’s commitment to its massive stimulus measures.
With the Pound remaining sensitive to global investor sentiment, we could see the GBP/EUR exchange rate begin to dip as uncertainty grows around the coronavirus pandemic.
Ajay Rajadhyaksha, Head of Macro Research at Barclays, was downbeat in his analysis, saying:
‘We have revised our GBP forecasts meaningfully lower and expect only limited reprieve vs. the EUR, from levels of significant undervaluation.’
EUR/GBP Outlook: Could the Euro Rise on Decreasing Italian Coronavirus Cases?
Looking ahead to next week, Monday will see the release of Germany’s flash harmonized index of consumer prices report for March. However, any significant decrease in Germany’s inflation pressure would prove EUR-negative.
Sterling could also fall on Monday if the UK’s GfK consumer confidence gauge confirms consensus and sinks by -14.
The EUR/GBP exchange rate will likely remain subdued into next week, however, as the Eurozone continues to combat the coronavirus. There could be some light at the end of the tunnel, however, if Italy’s cases continue to decrease – this would also boost the single currency.