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Pound Sterling to Euro Exchange Rate Tumbles as Federal Reserve Caution Boosts Euro Outlook

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Pound to Euro Exchange Rate Sheds Much of Last Week’s Gains 

The recently strong Euro (EUR) had been running out of steam this week, but the Pound Sterling to Euro (GBP/EUR) exchange rate is now falling again. The latest Federal Reserve news has spooked investors and given a fresh boost to the Euro. 

Last week saw GBP/EUR climb from 1.1120 and gain around a cent, closing at 1.1221. While GBP/EUR briefly attempted to keep climbing earlier in the week, its advances ultimately fell flat. 

Today, GBP/EUR is tumbling again. At the time of writing, GBP/EUR is trending near the level of 1.1153 after shedding over half of last week’s gains. 

Coronavirus and Brexit jitters continue to weigh on the Pound (GBP) outlook. Now though, the Federal Reserve’s latest gloomy forecast has boosted the Euro outlook further. 

Pound (GBP) Exchange Rates Fail to Hold as Brexit Uncertainties Worsen 

The Pound has been unable to benefit from the Federal Reserve’s latest forecasts. This is because the Pound has been seen as increasingly risk-correlated lately. 

Pound investors are anxious about Britain’s coronavirus outlook, due to a high death toll and government plans that have received mixed reaction

On top of this though, Brexit fears have been swelling up again over the past week. If Britain does not ask for an extension to the Brexit transition period before the end of July, it will be too late. 

EU officials are reportedly concerned that no progress is being made in UK-EU negotiations. Some EU sources are reportedly concerned about the lack of state aid agreements for 2021 and beyond if a deal is not made. One source said: 

‘You have the [World Trade Organization] agreement on subsidies but it is an old agreement and it is not easy to use. So it’s not really enough. You would need to find something else.’ 

Euro (EUR) Exchange Rates Up as Rival Currencies Hit by Federal Reserve Jitters 

The Euro has seen weeks of strong performance in the past few months. While this week it briefly seemed as though its strong-streak could come to an end, it has found fresh support today. 

The Federal Reserve’s June policy decision last night spooked global markets. Rather than showing optimism that economies would rebound from the coronavirus, the Fed instead forecast at least another year of poor performance. 

Fed officials predict that the US economy will contract in 2020. The bank also expects monetary policy to remain ultra-low until the end of 2022. 

According to Analysts at Danske Bank: 

‘The Fed said it will keep its QE buying ‘at least at current pace’. This means the Fed will continue to buy around $80 billion of Treasuries and $45 billion of mortgage-backed securities per month. This is another signal that the Fed is not close to exit its easy policy stance.’ 

While the news boosted safe havens, the Euro is benefitting even more than the US Dollar (USD). This is because the worrying US economic outlook is hurting the US Dollar, and the Euro is capitalising on its rival’s weakness. 

Pound to Euro (GBP/EUR) Exchange Rate Outlook Running Out of Upside Factors 

Even though the Pound to Euro (GBP/EUR) exchange rate’s recovery has been limited, investors are running low on reasons to buy it. 

The Pound outlook continues to be weighed by domestic coronavirus and Brexit fears. The Euro’s rising global appeal is only keeping further pressure on the British currency. 

Unless Britain’s coronavirus situation starts to improve more notably, or there is notable progress in Brexit negotiations, investors will continue to have little reason to buy the Pound. 

The Euro, on the other hand, will continue to benefit from weakness in both the Pound and its rival the US Dollar (USD). 

Even if the market’s safe haven run is limited, the poor US outlook will keep the EUR appealing in comparison to USD. 

Still, if tomorrow’s UK growth and trade data impresses investors, it could boost hopes that Britain’s economy is resilient. This may offer some late-week support to the Pound to Euro (GBP/EUR) exchange rate.