EUR/GBP Exchange Rate Sky-Rockets as UK Economic Outlook Darkens
The Euro Pound (EUR/GBP) exchange rate soared by 1.32% today, with the pairing currently trading around £0.87 as odds of an interest rate cut from the Bank of England (BoE) continue to mount over growing coronavirus (Covid-19) fears.
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, was downbeat about the strength of GBP in the near-term, commenting:
‘Sterling relies on a steady stream of external finance to maintain its value; rising risk aversion will hurt it… Sterling won’t be a safe haven if Covid-19 triggers a global slump.’
Today also saw the release of the UK Markit Manufacturing PMI for February, which undershot forecasts and eased slightly from 51.9 to 51.7.
Rob Dobson, Director at IHS Markit, was mixed in his analysis, pointing out further volatility in the British economy going forward.
‘The expansion of output was nonetheless the fastest since April 2019, as stronger demand from the domestic market led to the steepest increase in new work in 11 months. [However, with] supply-chain headwinds rising, and trade negotiations with the EU starting, it remains to be seen whether the recovery can stay on course during the coming months.’
The GBP/EUR exchange rate is set to suffer this week as global economic uncertainty threatens to derail UK-EU trade deal, which have officially begun today. Any further signs of a no-deal scenario emerging between the two powers would prove Pound-negative.
Euro (EUR) Soars as Safe-Haven Demand Increases on Covid-19 Fears
The Euro (EUR) soared against the weakened Sterling today as investors seek out the safe-haven single currency amid rising concerns over the global coronavirus outbreak.
Today also saw the release of February’s German Markit Manufacturing PMI rise to a better-than-expected 48. This was followed by the Eurozone’s Markit Manufacturing PMI which also beat forecasts and rose to 49.2.
Chris Williamson, Chief Business Economist at IHS, was upbeat in his analysis:
‘February saw encouraging signs that the Eurozone’s manufacturing downturn is easing. Production contracted at the slowest rate for nearly a year and, despite lost export sales, new orders fell at the weakest rate for 15 months amid signs of rising internal demand, notably from consumers.’
Increasing signs of an improving German economy, which is the largest in the Eurozone, have provided some uplift for the EUR/GBP exchange rate today.
EUR/GBP Outlook: Eurozone Inflation Report in Focus
Euro (EUR) investors will be awaiting tomorrow’s release of the Eurozone’s flash inflation report for February. Any signs of improvement would buoy optimism in the bloc’s economy and further boost the EUR/GBP exchange rate.
The Pound (GBP) will likely remain volatile over the course of this week as Sterling traders pay close attention to developments around the coronavirus. Any signs that this could intensify UK-EU trade talks and threaten a no-deal between the two powers would weaken the GBP/EUR exchange rate.
