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‘Extreme Flight to Safety’ Sends Euro Pound (EUR/GBP) Exchange Rate Higher

Euro Pound Sterling (EUR/GBP) Exchange Rate Jumps as Investors Flock to Safe Havens

The Euro Pound Sterling (EUR/GBP) exchange rate rallied on Monday afternoon, as investors flocked to safe-haven currencies. This left the pairing trading at around £0.8708.

Markets were dominated by coronavirus fear today after oil prices crashed by around 30% and stock markets fell as investors panicked.

Many analysts have dubbed today as ‘Black Monday’, as the market reaction has been chaotic. Any reports on UK-EU trade negotiations have been overshadowed by Covid-19 developments.

Against the US Dollar, the single currency rallied by more than 1%, leaving the EUR/USD exchange rate trading at its strongest since January 2019.

Investors struggled to assess the damage caused by the spread of coronavirus. In a note, ING analysts described the set up as a ‘perfect storm’ for currency markets.

The analysts also wrote:

‘Financial markets have suffered a rude awakening to notions that volatility was a thing of the past. We’re now seeing the kind of market dislocation not witnessed since the 2008-09 global financial crisis.

‘This all conspires to deliver an extreme flight to safety, into the likes of the JPY [Japanese Yen] and the CHF [Swiss Franc].’

Meanwhile, the single currency also received support after data revealed the German industrial sector showed some sign of life at the start of the year.

Production in the bloc’s largest economy rose by 3% and December’s figure was upwardly revised to -2.2%.

Sterling (GBP) Struggles as Coronavirus to Spread in a ‘Significant Way’

Meanwhile, following an emergency Cobra meeting, the UK is remaining in the ‘containment’ stage of the government’s response to Covid-19.

Although, Downing Street has said that it has accepted coronavirus ‘is going to spread in a significant way’.

The UK also saw a rise in cases, with 319 confirmed cases and Prime Minister Boris Johnson noted:

‘The number of coronavirus cases continues to rise in the UK and around the world. We are well prepared and will continue to make decisions to protect the public based on the latest scientific advice.’

Despite this, Sterling suffered significant losses against the Euro.

Looking ahead, the British Chancellor, Rishi Sunak will deliver his annual budget on Wednesday.

Investors will be looking for any indication of additional spending to offset the effects of the outbreak.

Euro Pound Outlook: Will EUR Benefit from Increased Safe-Haven Demand?

Looking ahead to Tuesday, the Pound (GBP) could receive a slight upswing of support following the release of like-for-like retail sales.

However, even if the BRC report sales rose higher than expected, rebounding from January’s disappointing figure, coronavirus fears will allow the Euro (EUR) to rise against Sterling.

Meanwhile, the single currency is likely to continue to rise if risk appetite declines as investor flock to typical safe-haven currencies and cause the Euro Pound (EUR/GBP) exchange rate to extend today’s gains.

However, gains will be limited ahead of the European Central Bank’s (ECB) monetary policy meeting on Thursday.