Pound Sterling Euro (GBP/EUR) Exchange Rate Muted Ahead of UK Budget
UPDATE 11/03/2020: The Pound Sterling Euro (GBP/EUR) exchange rate remained flat on Wednesday, leaving the pairing trading at around €1.1407.
The Pound remained under pressure as the Bank of England (BoE) became the latest central bank to ease monetary policy in response to the coronavirus outbreak.
For the first time since August 2016, the BoE slashed rates just ahead of Rishi Sunak’s spring budget.
BoE governor, Mark Carney said that the emergency cut would provide relief ‘at a difficult time’, and speaking at today’s news conference said:
‘The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp but should be temporary. Activity is likely to weaken materially in the coming months. The reduction in bank rate will help bolster confidence at this difficult time.’
Pound Sterling Euro (GBP/EUR) Exchange Rate Claws Back Losses after ‘Black Monday’
The Pound Sterling Euro (GBP/EUR) exchange rate edged higher, clawing back some of yesterday’s losses. This left the pairing trading at around €1.1497
It was announced on Monday that movement across Italy would be restricted and public gatherings banned from Tuesday.
The number of cases in the country passed 9,000 and the death toll reached 463. Despite this, there was a pick-up in markets today as investors caught their breath after the worst day since the financial crisis.
Markets appeared to calm after ‘Black Monday’ as oil prices rose by 5% after suffering the largest one-day fall in close to 30 years.
Investors eyed the possibility of further economic stimulus from major central banks to protect the global economy from the impact of Covid-19. Although today’s rise does not mean the current crisis is over.
According to Societe Generale’s Kit Juckes:
‘The expression ‘dead cat bounce’ was invented for mornings like this.’
Added to this, Neil Wilson from Markets.com noted:
‘European stock markets looked to recover some ground early on Tuesday on hopes of a round of stimulus measures as the market tried to rally the troops after the rout of Black Monday.
‘Investors are licking wounds and there is a stabilisation of the rout, but this looks like a short-term bounce on oversold levels, not a meaningful turn.
‘It smells like a dead cat. The stimulus is coming, but the situation on the ground gets worse. It seems comments from Donald Trump, and overnight some emollient tones from the Japanese authorities, are helping.’
Sterling (GBP) Edges Higher despite Downbeat UK Retail Sales
Meanwhile, data from the British Retail Consortium (BRC) revealed that like-for-like retail sales slumped by a worse-than-expected -0.4%.
However, data showed that consumers increased spending on healthcare and food products towards the end of February as coronavirus concerns grew.
Commenting on the data, BRC chief executive Helen Dickinson noted:
‘Clouds continued to hang over the retail industry in February, as storm Ciara, Dennis and Jorge took their toll on retail sales, particularly in fashion.
‘Despite many indicators suggesting a rise in confidence among UK shoppers in recent months, this has failed to translate into higher retail sales.
‘However, the end of the month saw a slight rise in spending on food and healthcare as a result of concerns around coronavirus.’
Despite the not-so upbeat data, the Pound was able to claw back some of yesterday’s losses as markets hope for a boost in stimulus.
Pound Euro Outlook: UK Spring Budget in Focus
Looking ahead, the Pound (GBP) could slide against the Euro (EUR) following the release of UK GDP and industrial production data.
If January’s GDP stagnates in January while industrial production plummets further than expected, Sterling will slump.
Meanwhile, traders will be focused on tomorrow’s UK Spring Budget which many expect to result in increased spending and measures to protect the economy from the spread of coronavirus.
If Chancellor Rishi Sunak gives any clues on additional stimulus from the Bank of England (BoE), GBP could rebound after weak data and the Pound Euro (GBP/EUR) exchange rate could edge higher.