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Pound to Euro (GBP/EUR) Exchange Rate Rises as ECB Predicts 8% to 12% Drop for Eurozone Economy This Year

Pound Euro exchange rate forecast

GBP/EUR Exchange Rate Edges Slightly Higher on Gloomy ECB Statement

The Pound to Euro (GBP/EUR) exchange rate edged higher today, with the pairing currently trading around €1.11.

The Euro (EUR) suffered today after Christine Lagarde, the European Central Bank’s President, predicted that the Eurozone’s economy could shrink by 8 to 12% this year due to the ‘sudden stop of activity’ caused by the coronavirus pandemic.

Ms Lagarde added:

‘Of course it will be remedied and we will find ways to move to a new stage and to a new form of economy. But we are now going through the immediate consequences on the economic front of that health crisis.’

However, following the European Union’s plan to prop up the bloc’s hardest hit by Covid-19, single currency traders are becoming increasingly optimistic that squabbling over fault lines in the 27-nation bloc could be coming to an end.

Parisha Saimbi, a currency strategist at BNP Paribas, commented:

‘In the event that we actually see the European Commission adopt a proposal in similar nature or stature of the France-Germany proposal, we do think that would be positive for the Euro.’

In Eurozone economic data, today will see the release of the preliminary Germany’s harmonised index of consumer prices for May. However, if the figure continues to fall, we could see the Euro struggle.

Pound (GBP) Edges Higher as UK Covid-19 Test and Trace Procedures Underway

The Pound (GBP) edged higher today despite UK-EU Brexit tensions being back in focus. This follows UK’s Chief Brexit negotiator, David Frost, saying that the UK prized its ‘economic and political freedom at the end of this year’.

Mr Frost also reiterated that it is the UK’s Government’s ‘firm policy’ not to extend the transition period, ‘and, if asked, we would not agree to it’.

As a result, Sterling traders are feeling increasingly jittery that UK-EU trade talks could once again meet an impasse. Furthermore, this would increase the likelihood of a no-deal Brexit on December 31st – the end of the transition period.

Meanwhile, Pound (GBP) investors are becoming more hopeful that Britain’s coronavirus situation could be heading towards better containment. This follows news that Covid-19 test and trace procedures are underway in England and Scotland.

Health Secretary Matt Hancock explains:

‘Our goal is that we have the turnaround of the test within 24 hours. We’ve now managed to get the system so that 84% of the tests that you take at a drive-through centre are turned around within 24 hours and the Prime Minister yesterday set us the goal of having every test turned around within 24 hours.’

GBP/EUR Forecast: Could Easing Eurozone Inflation Data Further Weaken the Euro?

Euro (EUR) investors will be keeping a close eye on tomorrow’s release of the Eurozone’s preliminary core Consumer Price Index for May. If this confirms forecasts and dips from 0.3% to 0.2%, we could see the single currency suffer.

Tomorrow will also see the release of Germany’s retail sales report for April. However, if these fall significantly – which is highly likely – the EUR/GBP exchange rate could likely ease further.

Meanwhile, Pound (GBP) traders will be looking ahead to tomorrow’s release of May’s Nationwide Housing Prices report. Any signs of deterioration would prove Pound-negative.

The GBP/EUR exchange rate will continue to be driven by the UK’s coronavirus situation this week. Any further signs that the UK’s Covid-19 rate of infection dropping would benefit Sterling.