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GBP/EUR Slides as Highly-Mutated Coronavirus Variant Rattles Markets

Pound Coin on Euro Banknote GBP/EUR

Pound Euro (GBP/EUR) Exchange Rate Dented by Coronavirus Variant Driven Risk-Off Trade

The Pound Euro (GBP/EUR) exchange rate has fallen sharply at the end of the week following news of the emergence of a concerning highly-mutated coronavirus variant that has triggered market flight to safe-haven assets.

GBP/EUR has lost over a cent since the start of the week, tumbling around 0.6% on Friday to trade at 1.1802 at the time of writing on Friday.

Pound Gains versus Riskier Assets, GBP/EUR Dented

The Pound (GBP) is struggling against the perceived safer-haven Euro today, but making gains versus its more risk-sensitive peers.

Jitters have swept markets due to reports that the highly-mutated coronavirus variant is more transmissible than the Delta variant and may evade the immunity offered by current Covid-19 vaccines.

Chief medical adviser to the UK Health and Security Agency Dr Susan Hopkins commented on the spread of the variant in South Africa reaching an R value of 2:

“We haven’t seen levels of transmission like that since right back at the beginning of the pandemic because of all the mitigation and steps we’ve taken.

“So that would cause a major problem if you had that high transmission with this type of virus, in a population where it may evade the immune responses that are already there.”

The Pound has also come under some pressure from investors repricing expectations for a rate hike from the Bank of England (BoE), which some see as possibly being delayed because of the new coronavirus variant.

According to the CME BoE Watch Tool, the probability of the central bank raising rates in December has dropped due to renewed uncertainty and its threat to global and UK economic recovery.

Developments and more detail about the emergence of the coronavirus variant in South Africa will leave markets cautious, with the BoE potentially altering its outlook at its policy meeting in December.

Doubts over the BoE raising interest rates could further weigh on GBP/EUR.

Euro (EUR) Surges amid Market Jitters

The Euro (EUR) is making significant gains across the board on Friday as fears over the latest coronavirus variant boost demand for safe-haven assets.

Investors have dumped emerging market and risk-sensitive currencies as risk-off trade sweeps global markets, which has in turn boosted safe-havens such as the Euro.

Broad weakness in the US Dollar caused by falling US Treasury yields is also benefitting EUR exchange rates due to the negative correlation in the pairing.

However, the single currency may lose part of this support later today when US markets reopen after the Thanksgiving holiday and liquidity increases in markets and trade in the US Dollar increases.

Looking ahead, surging cases of Covid-19 and renewed restrictions in Europe could limit EUR gains going into the weekend and start of next week.

EUR exchange rates may experience additional movement on Monday with the release of consumer confidence, economic sentiment and German inflation data.