Pound Sterling Euro (GBP/EUR) Exchange Rate Edges Higher on ‘Unnerving’ Rise in German R Rate
The Pound Sterling Euro (GBP/EUR) exchange rate traded around 0.3% higher this morning. This left the pairing trading at around €1.1080.
The riskier Pound was able to rise this morning despite markets being hit by a fresh bout of coronavirus worries.
Global cases have jumped beyond 8.8 million and traders are now focusing on whether this could mean further lockdowns. While this seems unlikely, there have been fresh restrictions imposed in Beijing and Victoria in Australia.
On a global scale, the coronavirus pandemic is continuing to accelerate, with the World Health Organization (WHO) reporting its largest single-day increase in cases. Cases jumped by over 183,000.
The single currency edged lower, and against the US Dollar (USD) slipped to a three-week low on divisions between EU leaders in early trade.
The bloc’s leaders met last week to discuss the coronavirus recovery fund. However, leaders disagreed on how to structure a planned recovery fund. This weighed on sentiment and left investors wary.
Added to this, over the weekend the R rate in Germany rose above the crucial 1 level. This means the coronavirus is spreading at a quick rate in the county again.
It is believed this is due to the huge number of infections seen at an abattoir in northern Germany last week.
According to City Index analyst, Fiona Cincotta:
‘Even though the number of cases in Germany is low, the rise is unnerving. The markets will be watching developments closely here. Germany has been relatively successfully in keeping deaths low and reducing the spread quickly in the first wave, investors will need to this second wave nipped in the bud to boost optimism that a second wave won’t be as devastating the first.
‘Meanwhile, in the US states such as California and Florida are still seeing the number of cases rise. Apple announced that it will be shutting 11 stores owing to rising cases in some states adding to investor woes. On a positive, the recent outbreak in Beijing appears to be fading.’
Pound (GBP) Jumps on BoE Governor Bailey’s Comments
Sterling edged higher on Monday following comments from the Bank of England’s (BoE) Governor Andrew Bailey.
The head of the bank revealed that the BoE would be changing its strategy on unwinding its stimulus measures when the time is right.
Writing for Bloomberg, the governor of the bank said the BoE aims to reverse some of its quantitative easing programme before it thought about a rate hike.
‘When the time comes to withdraw monetary stimulus, in my opinion it may be better to consider adjusting the level of reserves first without waiting to raise interest rates on a sustained basis.’
Meanwhile, the Pound was limited by the prospect of a no-deal Brexit. Traders worried as the UK and EU seemed to make little progress in ongoing trade negotiations.
Sterling (GBP) Rises as Traders Expect the UK to Ease Lockdown Further
Sterling edged higher as optimism amongst traders improved as Prime Minister Boris Johnson is expected to announce further easing of lockdown restrictions.
The Prime Minister is expected to announce whether or not the hospitality sector will be able to re-open on 4 July. Markets are also awaiting whether the 2m distancing rule will be relaxed.
Added to this, Chancellor Rishi Sunak is reportedly preparing a packing of stimulus measures which may include a temporary cut in VAT in order to stimulate economic activity.
While non-essential shops in England have already been reopened, Downing Street has warned the moves would be reversed if they led to an increase in coronavirus cases.
Pound Euro Outlook: Eurozone Consumer Confidence in Focus
Looking ahead, traders will be focusing on today’s Bundesbank monthly report which could send the Euro (EUR) lower against the Pound (GBP).
If Germany’s central bank is overly dovish about the county’s outlook, it could weigh on the single currency. Added to this, any dovish comments from Bundesbank policymakers today during a slew of speeches could weigh on EUR.
Meanwhile, EUR could claw back some losses against the Pound following the release of consumer confidence data.
If flash data from the Eurozone reveals consumers are growing increasingly confident as lockdown restrictions have been eased, it will leave the Pound Euro (GBP/EUR) exchange rate flat.