Pound to Euro Exchange Rate Rebounds Following Yesterday’s Plummet
Following broad losses yesterday, the Pound (GBP) is clinging back some losses today and the Pound Sterling to Euro (GBP/EUR) exchange rate is advancing. Rising market speculation that the European Central Bank (ECB) could cut Eurozone interest rates are weighing on the Euro (EUR).
Still, GBP/EUR’s recovery is limited so far. Following last week’s plummet from the interbank rate of 1.19 to 1.16, GBP/EUR continued to plunge yesterday. GBP/EUR touched on a four-month-low of 1.14 yesterday.
Despite GBP/EUR recovery attempts today, gains are limited due to a lack of strong Pound support. GBP/EUR continues to trend in the interbank region of 1.14 at the time of writing.
The first round of UK-EU Brexit transition period negotiations finally begun this week. The Pound remains highly sensitive to Brexit developments. Sterling is still being pressured by Bank of England (BoE) news as well.
Pound (GBP) Exchange Rate Rebound Limited amid Lack of Fresh Support
Investors are buying the Pound (GBP) back from cheap levels in profit-taking, rather than due to any fresh Pound support. It follows yesterday’s plummet, in which the British currency hit lows against many majors.
The Pound plummeted on a combination of hard Brexit fears, as well as rising Bank of England (BoE) interest rate cut bets.
BoE rate cut bets were the primary cause of movement throughout the day. BoE officials indicated they were willing to take necessary steps to prevent potential damage from the outbreak of coronavirus Covid-19.
GBP investors had recently been hoping for a UK economic rebound. As a result, this sudden resurgence in Bank of England rate cut speculation hit the British currency particularly hard.
Yesterday saw the publication of Markit’s February PMI results. These fell slightly short of projections at 51.7, making investors less optimistic about UK economic resilience.
Euro (EUR) Exchange Rates Pull Back from Highs after Rally
Opposite to the Pound (GBP) is the Euro (EUR), which has seen days of impressive gains due to weakness in rivals. As the Pound and US Dollar (USD) plunged, the Euro soared.
Bank of England (BoE) and Federal Reserve interest rate cut bets have risen in response to concerns over the potential impact of Covid-19. These bets rose much more than European Central Bank (ECB) rate cut bets.
However, analysts are still speculating some form of easing from the ECB, and rate cut speculation has risen somewhat.
ECB President Christine Lagarde said:
‘The ECB is closely monitoring developments and their implications for the economy, medium-term inflation and the transmission of our monetary policy. We stand ready to take appropriate and targeted measures, as necessary and commensurate with the underlying risks.’
Due to these comments and the high market panic over Covid-19, markets currently price in a high chance of a small 10 basis point interest rate cut from the bank. Bets are rising that this rate cut could happen as soon as next week.
Pound to Euro (GBP/EUR) Exchange Rate Highly Sensitive to Brexit and Central Bank News
Sterling’s (GBP) recovery attempts have been limited today so far, and the British currency still remains highly sensitive and volatile.
If there are fresh UK-EU Brexit tensions in the coming days for example, the Pound could quickly give up its recovery attempts and hit new lows.
Disappointing UK data could weigh on the Pound as well. Services and composite PMI data will be published tomorrow, which could put further pressure on Sterling’s outlook if they disappoint.
However, upcoming Eurozone data is likely to be even more influential.
Tomorrow will see the publication of Eurozone services PMIs, as well as the bloc’s retail sales results from January. Towards the end of the week, German factory orders data will be published.
Of course, coronavirus developments and how this affects central bank speculation will also remain highly influential for the Pound to Euro (GBP/EUR) exchange rate’s movement.