Despite a lack of fresh support for the Pound today, the British currency continues to advance on rival weakness and the Euro to British Pound (EUR/GBP) exchange rate fell further. Demand for the Euro remains limited as investors become increasingly concerned about differences between EU leaders over the idea of EU-wide fiscal stimulus such as ‘coronabonds’. The Pound is gaining on rivals and overall market sentiment but its potential for gains may be short-lived depending on upcoming developments.
Last week’s Pound resurge dragged EUR/GBP down from the level of 0.9229 to 0.8953, over two pence. While market movement has generally been a little calmer this week though, the Euro is still weakening and the Pound is benefitting from weakness in rival currencies.
EUR/GBP has lost almost another two pence this week. At the time of writing on Thursday afternoon, EUR/GBP is trending just above a low of 0.8760. This was the worst level for EUR/GBP in three weeks, since the first half of March.
EUR Exchange Rates Struggling amid Poor Eurozone Data and Concerns over EU Fissures
The Euro has been unable to keep benefitting from the market’s demand for safe havens. Following last week’s plunge from its highs, the Euro has continued to tumble on a variety of factors this week.
The US Dollar (USD), which has a negative correlation with the Euro, has been appealing on safe haven demand again this week.
Today especially, a shock rocketing of US jobless claims sent markets into fresh panic and led to higher demand for safe havens. This left the US Dollar more appealing and the Euro was left in the dust.
Domestic factors are also weighing on the Euro.
As the coronavirus pandemic worsens across Europe, nations are ramping up individual fiscal stimulus measures.
However, EU nations have thus far been unable to reach an agreement on a more sweeping EU-wide fiscal stimulus measure. So-called ‘coronabonds’ have been met with opposition from major nations like Germany and The Netherlands.
According to Analysts at Westpac Bank, the issue is increasingly becoming a big factor in the market’s Eurozone sentiment:
‘Next week’s follow-up Eurogroup summit (7th Apr) will be a critical test of the ability of the region’s FinMins and leaders to obtain at least a face-saving means of subduing tensions.
The stumbling block remains the apparent intransigence of Germany and Holland on any perceived loosening of southern EU budgets supported by northern nations.’
GBP Exchange Rates Continue to Benefit from Rival Weakness
As the Euro was dragged lower by US Dollar (USD) strength and Eurozone coronavirus fears, the Pound was able to more easily advance.
Britain’s own coronavirus outlook has been gloomy, but the Pound has still seen strong performance this week so far. It has been mostly due to broad weakness in rivals, such as the Euro.
Sterling was also able to benefit from brief periods of US Dollar weakness and small bursts of market risk-sentiment.
According to Kenneth Broux, FX Strategist at Societe Generale, Sterling is benefitting from bursts of risk-sentiment as well as the lingering impact of impressive US stimulus measures last week:
‘Action by central banks to ease Dollar supply has helped Sterling to return to calmer waters,
The oil price rally is also positive at the margin for Sterling as it correlates with improved risk sentiment.’
EUR/GBP Exchange Rate Forecast: PMIs to Illustrate Depth of March’s Coronavirus Impact
The Euro to Pound exchange rate is likely to end the week lower, as concerns over the EU’s coronavirus response continues to rise.
However, if there are any solidly optimistic developments in EU fiscal stimulus, or the Pound’s strength takes a sudden turn for the worse, the pair could claw back some losses.
Many EU officials are expressing confidence that an agreement will eventually be reached. Markets hope for some sort of solid development over the next week.
Meanwhile, Pound investors are also waiting for more fiscal stimulus.
Tomorrow’s upcoming PMI data could also cause some movement.
If Eurozone services PMI data beats forecasts, it could slightly boost hopes of Eurozone economic resilience while weak UK services data could deepen concerns about Britain’s economic health.
The Euro to Pound exchange rate could recover from its worst levels in weeks if the pressure on the Pound continues to mount.
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