Homepage » Brexit » Euro to Pound Sterling Exchange Rate Hold 4-Month-Best despite Italy Lockdown

Euro to Pound Sterling Exchange Rate Hold 4-Month-Best despite Italy Lockdown

Euro to Pound Exchange Rate Trending Near 2020 amid Weakness in Euro Rivals

Even though Italy’s government announced plans to lock down the country and prevent coronavirus spread, the Euro to Pound Sterling (EUR/GBP) exchange rate is still going strong. The Euro (EUR) remains highly appealing while Sterling (GBP) investors await UK budget news.

As its rivals weaken, the Euro’s appeal has only gained momentum in recent weeks. Last week saw EUR/GBP jump higher from 0.8601 before slipping and closing the week half a pence higher at around 0.8651.

This week has seen a similar jump higher, with EUR/GBP trending almost a cent higher at points. At the time of writing on Tuesday, EUR/GBP is trending around a high of 0.8745 – the best level for the pair since October 2019.

Developments regarding the coronavirus remain the biggest focus for both the Euro and Pound this week.

Euro (EUR) Exchange Rates Remain Strong despite Italy Lockdown

The Euro has been one of the strongest major currencies in recent weeks. Thanks to plunges in its biggest rival the US Dollar (USD), as well as being a popular funding currency, the Euro has benefitted from safe haven demand.

Investors continue to pile into the Euro amid global coronavirus panic due to its current safe haven appeal.

This has helped the Euro to remain strong, even as the number of Covid-19 cases in Italy surges.

Analysts predict the Euro will be weakened by the situation in Italy. According to economists from Rabobank:

‘This morning’s news that the Eurozone grew a better than expected 1.0% y/y in Q4 suggest that the economy may have been on a slightly firmer position going into the coronavirus than initially thought. That said, it is still our central view that the Eurozone will fall into recession this year, with Italy set to lead the pack lower.

We do expect the ECB to cut its discount rate by another 10 bps at this week’s policy meeting and also to announce targeted liquidity measures.’

For now though, US Dollar (USD) weakness and safe haven demand are keeping the Euro appealing as investors brush over Italy concerns.

Pound (GBP) Exchange Rate Investors Await UK Budget Presentation

While the Pound has been benefitting against the weakness of many major currencies, it lacks much in the way of support itself. Instead, coronavirus and Brexit uncertainties are keeping Sterling limp and driven mostly by rivals.

Sterling movement is cooling slightly today. A lack of notable developments driving the currency is making investors anxiously anticipate more comments from UK government or Bank of England (BoE) officials.

Tomorrow’s UK budget is highly anticipated amid speculation that the government could ramp up fiscal stimulus. The BoE is also expected to act, so bank decisions and comments are eagerly awaited.

According to Kiran Sakaria, Strategist at Handelsbanken:

‘The coronavirus outbreak has caused the Bank of England to promise that it is ready to take the necessary measures to ensure financial stability, and the market is currently pricing in two policy rate cuts from the BoE by June at the latest.’

Euro to Pound (EUR/GBP) Exchange Rate Awaits Budget and Central Bank Developments

Some notable Eurozone and UK data will be published in the coming days. This includes UK growth tomorrow and Eurozone production stats on Thursday.

However, amid the market’s focus on developments in coronavirus Covid-19, these reports may be overshadowed.

Instead, expectations for officials to comment and potentially offer stimulus in response to the coronavirus outbreak will be closely watched.

One of the biggest events this week will be the UK government’s budget presentation tomorrow. The government is expected to offer some fiscal policy to tackle the outbreak, so if fiscal policy disappoints investors it could cause domestic coronavirus fears to worsen.

On the other hand though, the Euro’s recent bullishness could also fade if the European Central Bank (ECB) concerns investors on Thursday.

If the ECB takes a more dovish tone on the outbreak than expected, the Euro’s appeal could finally dim and the Euro to Pound (EUR/GBP) exchange rate could shed much of its recent gains.