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Pound to Euro Exchange Rate Edges away from Decade Worst after Huge ECB Stimulus

Pound to Euro Exchange Rate Edges Higher despite Lack of Pound Support 

While there has not been any fresh news to support Sterling (GBP), the Pound Sterling to Euro (GBP/EUR) exchange rate edges higher today. Demand for the Euro (EUR) has been slightly weaker today as investors digest the latest bazooka from the European Central Bank (ECB). 

GBP/EUR has seen yet another week of slumping performance since markets opened on Monday. GBP/EUR opened the week at the level of 1.1035 and has shed over four cents. 

This morning’s lowest point for GBP/EUR was the worst level for the pair in a decade. GBP/EUR has since rebounded slightly from the low of 1.0533, trending closer to the level of 1.0612 at the time of writing. 

Investors are likely hesitant to buy the Pound too much as markets await further UK stimulus news. Meanwhile, Euro investors will continue to react to the ECB stimulus. 

Pound (GBP) Exchange Rate Rebound Limited as Broad Weakness Persists 

Investors bought the Pound back slightly from its worst levels today. However, this rebound was limited, due largely to weakness in the Euro and investors buying the British currency from cheap lows. 

The Pound outlook remains gloomy overall, as the perceived impact of the coronavirus pandemic on Britain’s economy worsens. More and more businesses are predicting major losses or being forced to close. 

Investors have also been selling the Pound lately due to surging strength in the US Dollar (USD). According to Jane Foley, Senior FX Strategist at Rabobank: 

‘Without doubt, the broad based strength of the USD is a large factor behind today’s plunge in the value of the Pound. 

 

That said, GBP has also lost ground vs. the EUR which is suggestive of intrinsic softness. 

Indeed, the Pound’s rebound today is also due to rival strength, as market movement cools slightly. 

Euro (EUR) Exchange Rates Slip as European Central Bank (ECB) Unleashes Bazooka 

Following suggestions last week that the European Central Bank (ECB) was running out of options for monetary policy easing, the bank has been the latest to inject stimulus today. 

The ECB’s latest massive stimulus plan, the ‘Pandemic Emergency Purchase Programme (PEPP), will see an asset-purchase programme of €750bn. 

Some scepticism lingered over the plan’s potential effectiveness. However, the plan, as well as ECB President Christine Lagarde’s comments that there are ‘no limits’ to the ECB’s commitment, may have helped markets to cool slightly today. 

The Euro is slipping this morning as investors continue to digest the news. Of course, continued strength in the Euro’s biggest rival, the US Dollar (USD), is also weighing heavily on the shared currency. 

Pound to Euro (GBP/EUR) Exchange Rate Awaits UK Stimulus Measures 

The UK government has ramped up action to handle the coronavirus pandemic this week. However, as Chancellor RIshi Sunak’s fiscal stimulus plan was quickly shrugged off by markets as not being enough, there is eager anticipation for more. 

Markets expect that the UK Treasury will introduce more fiscal stimulus to protect Britain’s businesses soon. Concerns remain about renters, the self-employed, and those who have lost their jobs due to downsizing and closures. 

If the government introduces measures that are enough to impress investors, the Pound could strengthen. 

If the Euro continues to fall back from its highs on US Dollar (USD) strength and European Central Bank (ECB) action, this would make it easier for GBP/EUR to recover. 

However, signs that the EU could introduce its own fiscal policy plans to support the Eurozone could boost the Euro and push the Pound to Euro (GBP/EUR) exchange rate lower again.