GPB/EUR Exchange Rate Falls as UK Lockdown Confusion Dampens UK Market Mood
The Pound to Euro (GBP/EUR) exchange rate fell by -0.4% this morning following the Bank of England’s (BoE) gloomy forecast of the UK’s deepest recession in 300-years. The pairing is currently trading around €1.14.
Peter Dixon, an Economist at Commerzbank, was downbeat, saying:
‘[I]t is clear that the next few months are going to produce some of the biggest output falls on record.’
The BoE’s Monetary Policy Committee (MPC) also said it had ‘constructed a plausible illustrative economic scenario’ to predict the political impact of the coronavirus on the British economy. Nonetheless, with the UK’s economy ravaged by the virus, its prognosis going forward was grim.
Meanwhile, Sterling has suffered over growing uncertainty over the UK’s nationwide lockdown. This follows last night’s announcement from Prime Minister Boris Johnson, which left some investors feeling unclear on the UK’s plan to recover its economy.
Labour leader Keir Starmer also accused Johnson’s strategy ‘unravelling’ due a general lack of clarity on the issue.
As a result, Pound investors are remaining wary as the UK’s economy continues to struggle.
Nevertheless, we could see Sterling edge higher today if Boris Johnson adds further details for the lockdown easing strategy.
Euro (EUR) Rises as the Eurozone Cautiously Reopens Economy
The Euro (EUR) has continued to benefit from growing hopes over the Eurozone’s economic recovery as the bloc’s major economies – Germany and France – continue to reopen following their respective Covid-19 peaks.
However, the Eurozone’s economy is expected to enter a steep recession due to the coronavirus pandemic.
Last week saw Paolo Gentiloni, the EU’s Economic Commissioner, comment:
‘It is now quite clear that the EU has entered the deepest economic recession in its history.’
‘Both the depth of the recession and the strength of recovery will be uneven, conditioned by the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country’s financial resources.’
The Euro (EUR) has also come under pressure over rising fears for Germany’s infection rate, which rose following the easing of the nations’ lockdown. As a result, single currency investors are anxious as the Eurozone’s largest economy continues to stumble in its tackling of the virus.
GBP/EUR Forecast: Could Sterling Rise on Further Lockdown Guidance?
Pound (GBP) investors will be awaiting tomorrow’s release of April’s UK BRC Retail Sales report. However, if this confirms consensus and continues to fall, then we could see Sterling sink lower.
Meanwhile, the Euro (EUR) will continue to be driven by the Eurozone’s economic developments. If Germany’s infection rate continues to rise, endangering its easing lockdown procedures, then we could see the single currency compromised.
The GBP/EUR exchange rate could recover, if Boris Johnson convinces markets of the UK’s economic recovery. Furthermore, if further details on the easing lockdown plan are provided, then Sterling would rise on increased certainty.