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Euro Pound (GBP/EUR) Exchange Rate Rises Despite the Eurozone’s Divide Over ‘Coronabonds’

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EUR/GBP Exchange Rate Edges Higher Despite EU ‘Coronabond’ Dispute

The Euro to Pound (EUR/GBP) exchange rate saw an uptick this morning, with the pairing currently trading around €1.142. Sterling’s gains, meanwhile, have been compromised by a worse-than-expected final UK Services PMI report for March.

The Euro (EUR) suffered this week as European leaders have failed to offer a unified European approach to a common debt instrument – referred to as ‘coronabonds’ – which was tabled by 9 of the bloc’s member states, including Italy and France.

Ursula van der Leyen, the Chief of the European Commission, criticised the lack of union within the bloc, but stopped short of agreeing upon ‘coronabond’ response, writing in Italy’s La Repubblica:

 ‘Today Europe is mobilising alongside Italy. Unfortunately, this has not always been the case. It must be recognised that in the early days of the crisis, in the face of the need for a common European response, too many have thought only of their own home problems.’

Today also saw the Eurozone’s final PMI composite figure fall to a worse-than-expected 29.7, leaving many Euro investors concerned for the health of the bloc’s economy going forward.

Chris Williamson, the Chief Business Economist at IHS Markit, was downbeat in his assessment of the report, saying:

‘With various countries stepping up their measures to contain the spread of the coronavirus, it’s no surprise to see the final PMI for March indicated an even steeper deterioration of business activity than the prior record decline signalled by the provisional ‘flash’ estimate. The data indicate that the eurozone economy is already contracting at an annualised rate approaching 10%, with worse inevitably to come in the near future.’

Pound’s (GBP) Gains Compromised as UK Services PMI ‘Sucked into a Black Hole’

The Pound (GBP) performed strongly this week after the US Federal Reserve’s massive stimulus injection has stabilised the global economy, while the Euro’s general weakness has propped up the GBP/EUR exchange rate.

Kit Juckes, Head of Financial Strategy at Société Générale, commented:

‘Sterling was the currency hit hardest by lack of liquidity and concern about access to dollars in early March, falling by around 10% in value. But it’s also been seen the strongest bounce as the fed has rolled out measures to tackle the issue.’

However, Sterling’s gains were compromised by today’s release of the final UK Markit Services PMI, which undershot forecasts and sank deeper into contraction territory from 35.7 to 34.5.

Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, commented on the report:

‘The services sector was sucked into a black hole and flung into the unknown by the forceful impact of the COVID-19 coronavirus, affecting every area of supply chains from transport to purchasing levels and job creation.’

With the UK’s largest sector beleaguered by the UK’s nationwide lockdown and the ongoing coronavirus crisis, we could see GBP’s gains against the Euro begin to slip as Britain’s economic outlook darkens.

EUR/GBP Forecast: Could Lack of EU Financial Unity Weaken the Single Currency?

Looking ahead to next week, we could see the EUR/GBP exchange rate continue its downward trend if the Eurozone fails to cohere on financial arrangements to curb the negative economic impact of the coronavirus.

Meanwhile, Monday will see the release of Germany’s Factory Orders figure for February. Any signs of this tumbling even before the coronavirus pandemic took hold of the Eurozone would paint a bleak picture of the bloc’s economy going forward.

The EUR/GBP exchange rate could also sink if the Pound’s strength continues to grow. However, with the UK’s nationwide lockdown set to continue, Britain’s economic pressures are likely to weigh on Sterling’s market value.