Euro (EUR) Eases Near a Three-Year Low
The Pound Sterling Euro (GBP/EUR) exchange rate remained muted, leaving the pairing trading at around €1.2026.
The single currency remained under pressure this morning after data showed GDP flat lined in the final three months of 2019.
The bloc’s largest economy has been battered over the course of the year, weakening to become one of the Eurozone’s worst performers.
This saw the currency ease near a three-year low at the end of this week’s session.
However, because the economy stagnated in Q4, the likelihood of the bloc’s largest economy falling into recession has shrunk.
According to Bloomberg Economist, Jamie Rush:
‘The business surveys that give the best read on GDP suggest the outlook for 1Q is a little brighter. We don’t expect industry to weigh on growth as much as it did in 4Q and see a modest rebound in 1Q.’
Although, EUR remained flat as the picture still appeared gloomy, as any chance of a rebound depends on China’s performance.
With the outbreak of Covid-19 weighing on markets, this could delay any chance of a rebound. Commenting on this, ING’s chief German economist, Carsten Brzeski noted:
‘Looking ahead, the latest soft indicators and industrial data for December do not bode well for the short-term outlook. Also, the impact from the coronavirus on the Chinese economy is likely to delay any rebound in the manufacturing.’
Sterling (GBP) Receives Boost After Shock Resignation
The Pound remained flat on Friday, consolidating gains made during yesterday’s session.
Yesterday saw GBP make gains after the unexpected resignation of Chancellor Sajid Javid in Prime Minister Boris Johnson’s Cabinet reshuffle.
This saw former chief secretary to the Treasury, Rishi Sunak take up the role. Investors largely expect the Prime Minister will have a tighter grip on the Treasury.
Sterling rose as this raised expectations that the upcoming budget would see an increase in public spending.
Commenting on this, Capital Economics’ Paul Dales noted:
‘We already thought that the Budget on 11th March would involve an extra loosening in fiscal policy worth 0.5% of GDP, which coming on top of the extra government spending announced in September 2019 would mean a fiscal boost of 1.0% is in the pipeline. It’s now possible that the Budget will provide a bigger bang.’
Pound Euro Outlook: Will Covid-19 Weigh on the Eurozone Economy?
Looking ahead, the Euro (EUR) could edge lower against the Pound (GBP) following the release of Eurozone GDP statistics.
If the bloc’s final quarter GDP disappoints, struggling to edge above stagnation, the single currency will slide.
Meanwhile, EUR will be left under pressure if investors continue to worry about the spread of Covid-19, and its impact on the Eurozone economy.
If the reported cases and death toll continues to climb, posing a larger threat to the bloc’s economy, the Pound Euro (GBP/EUR) exchange rate will rise.