Pound Sterling Euro (GBP/EUR) Exchange Rate Falls as ECB Holds Fire
UPDATE: The Pound Sterling Euro (GBP/EUR) exchange rate plummeted by close to -1%, leaving the pairing trading at around €1.1272.
Today saw the European Central Bank (ECB) announced fresh stimulus measures to help the bloc’s struggling economy cope with the coronavirus pandemic.
In a statement, the ECB said:
‘These operations will support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises.
‘A temporary envelope of additional net asset purchases of 120 billion euros will be added until the end of the year, ensuring a strong contribution from the private sector purchase programmes.’
The further stimulus boosted the single currency, and the bank left the door open to further interest rate cuts.
Pound Sterling Euro (GBP/EUR) Exchange Rate Falls Ahead of ECB Monetary Policy Meeting
The Pound Sterling Euro (GBP/EUR) exchange rate slumped, leaving the pairing trading at around €1.1339.
The single currency edged higher against the Pound ahead of today’s European Central Bank (ECB) monetary policy meeting.
It is all but certain the bank will unleash new stimulus measures in response to the coronavirus outbreak, pushing policy closer to its limits.
With millions of people on lockdown in Italy, companies struggling with disrupted supply chains and markets in chaos, the pressure on the ECB has increased.
According to Berenberg economist, Florian Hense:
‘None of these monetary measures will stop the spread of the virus. But they are among the best measures to prevent the economic damage being even more severe in potential second-round effects.’
Sterling (GBP) Slumps despite £30 Billion Economic Stimulus Plan
On Wednesday, the Pound was able to cling onto earlier gains after the Bank of England (BoE) slashed rates the government announced a £30 billion economic stimulus plan.
Commenting on this, currency strategist at MUFG, Lee Hardman noted:
‘The government has stepped up to the plate with support for the economy and the co-ordinated action with the Bank of England is encouraging.’
The BoE became the latest central bank to slash rates in response to growing concern about the coronavirus outbreak.
The cut lifted GBP from an earlier one week low, but against the Euro, the Pound’s performance was lacklustre and on Thursday GBP/EUR slumped.
Meanwhile, the UK government is expected to announce it is switching tactics aimed at delaying the spread of coronavirus.
In an emergency Cobra meeting later today Prime Minister Boris Johnson is expected to announce plans to move from ‘containment’ to the ‘delay’ phase.
WHO Declares Coronavirus Outbreak is a Pandemic
Yesterday the World Health Organization (WHO) labelled the outbreak a ‘pandemic’.
The Euro received a slight boost as risk appetite plummeted after US President Donald Trump announced travel restrictions to Europe.
Travel from Europe, excluding the UK, will be suspended for the next 30 days.
Markets were disappointed by the President’s address and according to Bank of Singapore currency strategist, Moh Siong Sim:
‘The market was looking for more. A travel ban is part of the solution, but the more important parts are still missing. They are really the public health measures: Paid sick leave, free testing, free treatment.
‘The market is right now looking for perhaps more action from the Fed, given the disappointment from the White House.’
Pound Euro Outlook: European Central Bank in Focus
Looking ahead, the Euro (EUR) could reverse earlier gains against the Pound (GBP) following the European Central Bank’s (ECB) monetary policy meeting.
If the ECB lowers its deposit rate, but signals there is little room to maneuver it could dampen Euro sentiment.
Meanwhile, the single currency could suffer further losses following the bank’s press conference.
If ECB chief, Christine Lagarde is overly dovish about the outlook for the Eurozone due to the spread of coronavirus, the Pound Euro (GBP/EUR) exchange rate will edge higher.