Pound Sterling Euro (GBP/EUR) Exchange Rate Rallies Following Second Emergency BoE Cut
UPDATE: The Pound Sterling Euro (GBP/EUR) exchange rate continued to rise on Thursday, rebounding by around 3% this afternoon. This left the pairing trading at around €1.0924.
Sterling rallied this afternoon following the announcement the Bank of England (BoE) had slashed interest rates for the second time this month.
In the second emergency rate cut from the bank, rates were cut to a record low of 0.1% due to the growing concerns with the coronavirus pandemic.
Commenting on the rate cut, Tom Stevenson, investment director for personal investing at Fidelity International said:
‘Britain is now a whisker away from the negative interest rate club. Rates have never been this low in the more than 300-year history of the Bank of England. Purchases of government and corporate bonds have been ramped up. A desperate measure for a desperate situation.’
Pound Sterling Euro (GBP/EUR) Exchange Rate Edges Higher on Weak German Business Climate
The Pound Sterling Euro (GBP/EUR) exchange rate edged higher this morning, trading at around 0.9% higher at €1.06699.
This morning, data from the bloc’s largest economy showed German business sentiment slumped this month.
Ifo’s Business Climate Index plummeted to 87.7 from February’s 96.0. Single currency sentiment was left under pressure as this was the largest monthly drop since 1991.
The index was also at its lowest level since August 2009.
The Euro edged lower despite the European Central Bank (ECB) announcing a €750 billion ‘Pandemic Emergency Purchase Programme’ to help support the bloc’s economy.
In a release the ECB stated:
‘The ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock.
‘This applies equally to families, firms, banks and governments. The Governing Council will do everything necessary within its mandate.’
However, so far markets have not been impressed by government pledges to help tackle the coronavirus pandemic.
Yesterday: GBP/EUR Plummets to Decade Low
Wednesday saw the Pound plummet to its lowest levels against the US Dollar (USD) since 1985 and to over a decade low against the single currency.
Coronavirus fears took hold of markets for another day, which saw traders rushing for Dollars.
Sterling slumped by as much as 3.5% against the Euro, dragging the pairing to its lowest level since March 2009.
Commenting on yesterday’s movement, Ulrich Leuchtmann, head of FX and commodity research at Commerzbank said:
‘Sterling is in a very difficult situation – you don’t want any kind of extra risk in your portfolio.
‘You might be positive about [Brexit] or not, but you knew you were taking additional risk, which is not required at the moment so there is a big motivation for dumping Sterling at the moment.’
Sterling also suffered as traders shrugged off the British government’s announcement of a £330 billion lifeline of loan guarantees and added tax cuts.
Added to this, new Bank of England (BoE) Governor, Andrew Bailey said policymakers were considered cash handouts to help keep the economy moving.
However, on Thursday, weak German data allowed the Pound to recover some of yesterday’s losses.
Pound Euro Outlook: Coronavirus Pandemic to Remain in Focus
Looking ahead, it is likely the coronavirus pandemic will remain the main catalyst for movement of the Pound (GBP) against the Euro (EUR).
However, further weak data from the bloc’s largest economy could leave the single currency under pressure.
If Germany’s Producer Price Index (PPI) slumps further than expected in February, the Pound Euro (GBP/EUR) exchange rate could extend today’s gains.