Pound Sterling Euro (GBP/EUR) Exchange Rate Falls despite Bundesbank’s Warnings
UPDATE: The Pound Sterling Euro (GBP/EUR) exchange rate slumped, leaving the pairing trading at around €1.0795.
Sterling suffered losses against the Euro despite Germany’s central bank warning a deep recession for the bloc’s largest economy was now inevitable.
In its report, the Bundesbank noted:
‘The slide into a pronounced recession cannot be prevented.
‘German public finances are well positioned for this.’
The German economy was already on the edge of recession before the coronavirus pandemic hit its domestic market.
Pound Sterling Euro (GBP/EUR) Exchange Rate Muted as Coronavirus Remains in Focus
The Pound Sterling Euro (GBP/EUR) exchange rate remained largely flat this morning, leaving the pairing trading at around €1.0857.
Markets continued to focus on the coronavirus epidemic and this week’s sell-off was triggered by reports the US Senate failed to approve a massive funding package.
According to global chief markets strategist at AxiCorp, Stephen Innes, the political deadlock in the United States is scaring markets. He added:
‘While other governments around the world pour money into fiscal spending, the US can’t get over its political squabbling. Democrats claim the money will just go to corporates, and hence they can’t support it.’
Meanwhile, in the UK, health secretary Matt Hancock said the government is prepared to ‘do what it takes’ to tackle the coronavirus pandemic as the country’s death toll hit 281.
Under new proposals discussed by MPs, the police could force anyone with symptoms to isolate and airports could be shut. The health secretary said:
‘We’ve seen with this virus it spreads so easily.
‘In other countries in Europe where they didn’t take these crackdowns quite so early, it’s got very serious.
‘So of course we’re prepared to do what it takes.’
Euro (EUR) Benefits from Dollar Weakness
As the virus has now spread to more than 100 countries and claimed the lives of over 13,000 people, investors remained on edge.
The Euro was able to edge up against the US Dollar (USD) after lawmakers failed to approve a stimulus package in the United States.
Although, analysts have warned that this could be short-lived as investors will return to the Dollar as they seek to hold onto cash. This likely left EUR flat against Sterling on Monday morning.
According to FX strategist at Daiwa Securities in Tokyo, Yukio Ishizuki:
‘We’ve moved from risk off to a phase where major players are competing with each other for the safety of holding Dollars in cash.
‘There are still a lot of investors who need to sell riskier assets, and they want to hold their money in Dollars.’
Pound Euro Outlook: Weak PMIs to Send EUR Lower
Looking ahead, the Euro (EUR) could plummet against the Pound (GBP) following the release of German PMI data.
If March’s flash PMI services and manufacturing data tumbles further into contraction than expected, the single currency will slide.
Meanwhile, weak UK PMI data could leave Sterling treading water. If the country’s flash services PMI slides below the 50 no-change mark, it could leave the Pound Euro (GBP/EUR) exchange rate flat.