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Euro Pound Sterling (EUR/GBP) Exchange Rate Flat as World Faces Steepest Downturn Since the Great Depression

Euro Pound Sterling (EUR/GBP) Exchange Rate Flat After Reaching One-Month Lows

The Euro Pound Sterling (EUR/GBP) exchange rate remained largely flat this afternoon, trading at around £0.8705.

Earlier on Tuesday, the Pound was able to rise to one-month highs against both the Euro and US Dollar (USD).

Optimism the lockdowns are helping to slow the spread of the coronavirus pandemic boosted risk appetite, strengthening riskier currencies.

Sterling has benefitted this month from improved risk sentiment as some economies have considered reopening and the number of covid-19 cases slow. This is despite warnings from experts that Britain may be the worst-hit country in Europe.

Commenting on this MUFG’s currency analyst, Lee Hardman noted:

‘We’re still in this reversal mode where currencies hit hard last month are rebounding.

‘The Pound was one of the worst performing currencies last month. Britain has a large current account deficit and is seen as vulnerable in crisis conditions – it also performed badly in the financial crisis.

‘But we are now moving away from a period of tension and stress in markets, allowing currencies like the Pound to gradually recover.’

However, risk appetite was dampened after the IMF warned the global economy was set to face the worst recession since the Great Depression.

IMF: Worst Global Recession Since the Great Depression

The single currency remained under pressure today, after the International Monetary Fund (IMF) said the global economy is expected to contract by -3%.

The global economy is expected to shrink, marking the largest downturn since the 1930s Great Depression.

In its report, the IMF noted:

‘It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.

‘The Great Lockdown, as one might call it, is projected to shrink global growth dramatically.’

The IMF also noted that while it predicted a partial rebound in 2021, its forecasts were marked by the ‘extreme uncertainty’ which could mean outcomes could be worse depending on the course of the pandemic.

According to the IMF’s chief economist, Gita Gopinath:

‘This recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit.’

Meanwhile, the Pound remained under pressure this afternoon after the UK’s Office for Budget Responsibility (OBR) said the country’s economy could shrink by 35% during Q2.

This forecast was based on the lockdown lasting three months, and the OBR said the economy could bounce back quickly.

Euro Pound Outlook: Coronavirus Pandemic in Focus

Looking ahead to the start of Wednesday’s session, the Euro (EUR) could suffer losses against the Pound (GBP) following the release of weak data from the Eurozone.

If inflation slumps further than expected in Spain, Italy and France it will dampen sentiment in the single currency.

Meanwhile, the coronavirus pandemic will remain the main catalyst for movement in both the Euro and Pound.

If risk sentiment continues to improve over the course of the day, and traders continue to move away from the safety of the US Dollar (USD), the Euro Pound (EUR/GBP) exchange rate will edge lower.