The Euro has been benefitting slightly from rival weakness today, but despite this the Euro to Pound (EUR/GBP) exchange rate has been struggling to sustain any gains. As the Pound rebounds from its worst levels after days of sharp losses, the Euro has been unable to keep climbing. Still, the Pound’s rebound might be limited unless there is more supportive UK developments soon, so it’s also possible that the pair will resume gains soon.
While the Euro’s strength has softened slightly over the past week, EUR/GBP remains considerably high. Last week saw EUR/GBP climb from 0.9063 to 0.9220, even briefly touching on a high of 0.9493. This was the best level for EUR/GBP for over a decade.
EUR/GBP has again been trending with an upside bias this week so far. However, following yesterday’s advance the pair has slipped slightly and only trends a little higher at the time of writing, in the region of 0.9235.
EUR Exchange Rates Driven by Rivals despite EU’s Concerning Coronavirus Outlook
The Euro is seeing fairly mixed movement today. Investors are largely overlooking the latest developments in EU politics and data. Instead, the currency is being driven more by global market movements.
For example, as the US Dollar’s (USD) biggest rival, the Euro has been rising due to the Federal Reserve’s latest stimulus measures. Fed stimulus knocked the US Dollar, which was keeping the Euro appealing until this morning.
However, against the Pound the Euro is falling. This is largely due to the Pound’s weakness, but the Euro has been able to benefit thanks to lingering market demand for the Euro as a relatively safe currency.
Due to Euro trade’s currency focus over rival strength, investors haven’t paid much mind to today’s shockingly poor Eurozone PMI projections.
While Eurozone manufacturing was a little more resilient than expected in March, the services industry collapsed due to the coronavirus pandemic. This left the Eurozone’s overall composite PMI at a shocking contraction of 31.4.
According to Chris WIlliamson, Chief Business Economist at IHS Markit:
‘Business activity across the eurozone collapsed in March to an extent far exceeding that seen even at the height of the global financial crisis. Steep downturns were seen in France, Germany and across the rest of the Eurozone as governments took increasingly tough measures to contain the spread of the coronavirus.’
GBP Exchange Rates Rebound from Cheapest levels amid Risk Sentiment
In reaction to the latest Federal Reserve stimulus package, which highly impressed investors, markets have finally shown signs of calm.
Amid a small boost of market calm, some investors have been opting to buy currencies more correlated with risk back from their lowest levels.
This has also benefitted the Pound, which has seen more risk-correlated in recent months. Investors are buying the Pound back from its cheapest levels thanks to the rise in risk-sentiment.
Still, analysts note the Pound remains under pressure, so its current gains have been limited. According to Analysts at ING:
‘The UK government followed other European states and announced tougher restrictions to battle the Covid 19 crisis. As long as markets see global and fiscal and monetary policies as mis-aligned and the Dollar funding issue remains in place, external funding related GBP will remain vulnerable.’
EUR/GBP Exchange Rate Forecast: Fiscal Policy and Risk-Sentiment in Focus
Despite its slip today, the Euro to Pound exchange rate is still in a fairly strong position to advance.
The Euro will likely continue to benefit from some safe haven demand. Unless there is another boost in market risk-sentiment, there is unlikely to be a sustained jump in demand for the Pound.
However, analysts speculate the Pound outlook could improve if Britain’s government ramps up its stimulus plans.
UK Chancellor Rishi Sunak is under pressure to offer more fiscal support for the self-employed during the coronavirus pandemic. If stimulus is indeed ramped up, the Pound could climb.
On the other hand, impressive stimulus from EU nations could boost the Euro’s appeal as a safe haven. The EU has relaxed rules on government spending amid the crisis.
Overall, developments in the coronavirus and how governments continue to handle it will dominate the Euro to Pound exchange rate.
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