Euro Pound Sterling (EUR/GBP) Exchange Rate Slides as US-China Tensions Increase
The Euro Pound Sterling (EUR/GBP) exchange rate edged around -0.2% lower on Friday, leaving the pairing trading at around £0.8936.
The single currency remained under pressure today as markets focused on trade tensions between the United States and China.
Traders began to flock back to the safety of the US Dollar (USD) after President Donald Trump said the US would react ‘very strongly’ to China’s plans for a new security law on Hong Kong.
The law could lead to further pro-democracy protests in the country and this increased tensions, as Sino-US relations continue to worsen.
The US also ramped up its criticism of Beijing, blaming the country for the spread of the coronavirus.
According to Mizuho Bank’s head of FX Sales, Neil Jones:
‘Currently currencies are reflecting the risk-off scenario and that, for today anyway, explains why the Dollar is higher.
‘I think it will continue to go higher today and weigh on currencies like the Euro and the Pound, and the offshore Yuan.’
As traders continue to flock to the Dollar, the strengthening of the US currency is another factor in weakening the single currency.
Pound (GBP) Rises despite Dire Retail Sales and Record High Public Debt
Meanwhile, Sterling edged higher against the Euro today. GBP rose despite data showing British retail sales slumped by a record -18% as coronavirus wreaked havoc on the economy.
Sales slumped by the most on record in April as the country spent the whole month in lockdown.
Added to this, the British government borrowed more in April than it has in any month on record, which weighed on the Pound. Public debt was pushed close to 100% of GDP, the highest since 1963.
In yet another blow to the British currency, data revealed confidence amongst consumers plummeted back to its joint-lowest level since 2009.
This slew of disappointing data weighed on Sterling and with the looming threat of Brexit, investors have been deterred.
ING wrote:
‘With the prospects of negative rates fully on the market’s radar and in part priced in by the end of this year and for 2021, the next main hurdle for GBP should be the negative news-flow on the trade negotiations and likely no extension of the UK-EU transition period.’
Euro Pound Outlook: German GDP and Business Climate in Focus
Looking ahead, the Euro (EUR) could suffer losses against the Pound (GBP) on Monday following the release of German GDP data.
If final growth data for the bloc’s largest economy shows the country entered a recession in the first quarter, the Euro will fall.
Meanwhile, the single currency could edge lower following the release of Ifo’s German business climate.
If Germany’s business climate measure suffers further losses in May, it will send the Euro Pound (EUR/GBP) exchange rate lower.