Pound Euro (GBP/EUR) Exchange Rate Steady, ECB Rate Cut Speculation Rises

March 5, 2020 – Written by John Cameron

GBP/EUR Exchange Rate Rangebound, German Recession Fears Increase

The Pound Euro (GBP/EUR) exchange rate held steady today, with the pairing currently trading around €1.155 in spite of growing expectations that the European Central Bank (ECB) could loosen its monetary policy at next Thursday’s central bank meeting.

This follows yesterday’s release of Germany’s Markit PMI Composite report which showed that, while the German economy had remained relatively strong In February, there are signs of deterioration and a teetering toward recession territory.

George Vassey, an analyst at Western Union, commented:

‘Despite the spreading of the coronavirus across Europe, the Euro has strengthened significantly against most major currency peers over the past week or two… Investors aren’t attracted to the Euro – slow Eurozone growth, high unemployment and low-interest rates – it is rather the relentless unwinding of carry trades causing the spike in the common currency’s value.’

However, the EUR/GBP exchange rate has remained steady today with single currency traders eyeing coronavirus (COVID-19) developments for any further signs of it spreading throughout Europe.

GBP/EUR Exchange Rate Steady, BoE Rate Cut Speculations in Focus

The Pound (GBP) failed to gain on the Euro (EUR) as the Bank of England (BoE) faces increasing pressure to slash its interest rates amid rising fears over an escalating UK coronavirus outbreak.

Andrew Bailey, the next Governor of the BoE, provided Sterling traders with some hope, however, after saying that the bank needed more ‘evidence’ on how the virus had affected supply-chains.

Today also saw Sterling benefit from positive signs around UK-EU trade negotiations, with Michel Barnier, the EU’s Chief Brexit negotiator, saying that recent talks between the two powers had been ‘very constructive’.

Mr Barnier said:

‘This first round was an opportunity to exchange, compare and clarify our respective positions. There are points of convergence and divergence, which is totally normal for a first round of negotiations.’

GBP investors will be awaiting today’s speech from Mark Carney, the Governor of the BoE. Any hints of a near-term rate cut from the central bank, however, would prove Pound-negative.

After Mr Carney warned that the Bank could ‘act as appropriate’ amid the coronavirus outbreak, this has left odds increasingly in favour that the BoE’s policymakers could favour a rate cut next month.

GBP/EUR Outlook: Could Coronavirus Fears Weaken Sterling?

Euro (EUR) investors will be looking ahead to tomorrow’s release of January’s German factory orders report. If this confirms consensus and rises to 1.4% we could see the EUR/GBP exchange rate edge higher.

The GBP/EUR exchange rate will be driven by coronavirus developments throughout the course of this week. Any signs of escalation would weaken the Pound as the UK economy becomes increasingly sensitive to weakening global trade.

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