Euro Pound Sterling (EUR/GBP) Exchange Rate Muted as BoE Predicts Worst Slump in 300 Years
The Euro Pound Sterling (EUR/GBP) exchange rate was left flat this afternoon, leaving the pairing trading around £0.8761.
The Pound was able to make gains on Thursday morning after the Bank of England (BoE) left interest rates on hold.
As expected, the bank did not announce any further stimulus, but said it would be ready to take action to counter the economic chaos caused by the coronavirus pandemic.
However, this morning’s Pound rally was short-lived, and GBP was left flat against the single currency.
The bank also said that the UK could be headed for its largest economic slump in over 300 years due to the coronavirus pandemic.
Commenting on this, MUFG’s currency strategist, Lee Hardman noted:
‘The Pound staged a knee-jerk relief rally, as there had been some expectations that the BoE could extend quantitative easing.
‘But the BoE is likely to extend asset purchases, so that’s why there’s been only a short-term boost for the Pound today.’
Added to this, the UK has been slower than other European countries to announce plans to re-open the economy.
Although reports revealed that Prime Minister Boris Johnson will chair a meeting today, after it was suggested some lockdown rules could be eased from Monday.
German Constitutional Court’s Ruling Weighs on the Euro (EUR)
The single currency remained flat this afternoon despite improving against a handful of currencies and rebounding after three days of selling.
However, traders continued to remain cautious after Germany’s court ruling this week over the European Central Bank’s (ECB) stimulus scheme.
This decision weighed on the single currency and caused it to lose more than 1.5% this week, and set it up for its largest drop in over a month.
The Euro’s weakness was sparked by the German court’s ruling that the ECB had just three months to justify purchases under its bond-buying programme or lose the participation of the Bundesbank.
According to Commerzbank analsyst, Antje Praefcke, the frightening realisation that things could deteriorate further for the Eurozone that is already being weakened by the coronavirus has kept a hold on markets.
In a note, Praefcke stated:
‘Then add the German Constitutional Court’s ruling on the PSPP (Public Sector Purchase Programme) the day before yesterday to that and the toxic mix for the Euro is complete.’
Euro Pound Outlook: Will British Consumer Confidence Deteriorate Further?
Looking ahead to Friday, the Pound (GBP) could surrender some of today’s gains against the Euro (EUR) following the release of British consumer confidence data.
If Britain’s flash consumer confidence falls further than expected in May, it will leave Sterling on the back foot.
Meanwhile, the single currency could also suffer some losses following the release of German trade balance data.
If both German imports and exports plummet further than expected in March, the Euro Pound (EUR/GBP) exchange rate will be left flat.