Euro Pound Sterling (EUR/GBP) Exchange Rate Higher as Coronavirus Dominates Markets
The Euro Pound Sterling (EUR/GBP) exchange rate jumped by around 1%, leaving the pairing trading at around £0.9126.
The Euro rallied against a weaker Sterling on Monday as markets continued to focus on the spread of coronavirus.
Added to this, last night’s surprise rate cut from the US Federal Reserve weighed on market sentiment and sent the single currency higher.
Commenting on this, investment research analyst at The Share Centre, Helal Miah noted:
‘The action taken by the Fed’s overnight has only added to the roller coaster ride that is the current state of the financial markets. Its decision to cut rates to zero is reminiscent of the emergency situation during the financial crisis and indication of where it thinks the US economy could go – a recession or maybe worse! The Fed’s decision, which was co-ordinated with the Bank of Japan also taking action, initially lent support to financial futures markets at the open on Sunday night.
‘Unfortunately I believe the markets for now will ignore monetary policy actions and focus on the pace of the spread of the disease and the drastic actions Governments across the world take to stop it. Monetary and fiscal policies and direct support for the most affected sectors will help on the recovery post the peak of the epidemic, but the markets for the time being are set to continue on this rollercoaster ride.’
Sterling (GBP) Slides as British Manufacturing Weakens in 2020
While the market focused on the spread of coronavirus, further data revealed that manufacturing in Britain weakened.
Industry surveys showed that the sector weakened sharply at the start of the year before the Covid-19 crisis escalated. This has added urgency to the need for a UK-EU trade deal.
According to Make UK and accounts BDO, exports in the UK shrank for the first time since the end of 2016.
Make UK also now expect British manufacturing output to slump -2.1% in 2020, down from its previous expectations of a 0.3% rise. It also warned that the coronavirus outbreak could mean a further cut in production.
Commenting on the data, Make UK’s chief economist, Seamus Nevin said:
‘Even before the current situation, the shocking drop in exports could not have come at a worse time ahead of potentially difficult trade talks where the clock is running down fast.
‘It is now vital that government works with industry to limit the damage to industry and takes whatever steps are necessary to safeguard skills in particular.’
Euro Pound Outlook: Will Weak German Sentiment Weigh on EUR?
Looking ahead, the Pound (GBP) could edge up slightly against the Euro (EUR) following the release of UK employment statistics.
If unemployment remains low and average earnings increase higher than expected, Sterling will rise.
Meanwhile, the single currency could slump following the release of March’s German economic sentiment index.
If sentiment in the bloc’s largest economy slumps further than expected, the Euro Pound (EUR/GBP) exchange rate will slide.