GBP/EUR Exchange Rate Stuck at 2020 Low
The Pound to Euro (GBP/EUR) exchange rate is trading on the back foot this morning, as markets welcome reports that Eurozone governments are exploring their options for fiscal stimulus.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1447, slightly down from this morning’s opening levels and stuck close to a four-month low.
Euro (EUR) Buoyed by Fiscal Stimulus Hopes
The Euro (EUR) continues to draw support this morning on growing hopes that Eurozone members are planning to step up their spending in order to limit the economic impact of the coronavirus.
French finance minister Bruno Le Maire is the latest official to urge Eurozone governments to implement more fiscal stimulus to help shore up the Eurozone economy.
French Finance Minister Bruno Le Maire says the euro-area must prepare fiscal stimulus to use if the economic situation deteriorates due to the coronavirus outbreak https://t.co/zdh4itWoCZ
— Bloomberg (@business) March 4, 2020
Speaking on BFM business radio Le Marie said:
‘If there is a time when there needs to be flexibility on budgetary rules, it is when we are dealing with a health crisis. We need to look more to fiscal policy than monetary policy in our response to coronavirus.’
The real focus for EUR investors however will be on Germany and whether its fiscally conservative government will answer the call or if it will keep tight reins on its spending.
Pound (GBP) Muted as UK Service Sector Growth Slows
The Pound (GBP) is struggling to find momentum this morning, as traders respond to the UK’s latest Services PMI.
According to the final figures published by IHS Markit this morning, the UK’s services index slipped from 53.9 to 53.2 in February.
Unsurprisingly it seems that concerns over the coronavirus took its toll on the UK’s private sector last month.
Chris Williamson, Chief Business Economist at IHS Markit, said:
‘The post-election rebound in service sector growth lost some of its bounce in February, in part due to coronavirus related disruptions to sectors such as travel and tourism.
‘Whether this expansion can be sustained in coming months is starting to look increasingly at risk. The survey highlights the risks to the economy from the coronavirus.’
GBP/EUR Exchange Rate Forecast: BoE to Make Emergency Rate Cut this Week?
Looking ahead, the Pound to Euro (GBP/EUR) exchange rate could face some volatility in the second half of the week, amidst speculation the Bank of England (BoE) may follow the Federal Reserve’s lead in implementing an emergency rate cut this week.
In a statement released earlier this week the BoE vowed to take ‘all necessary steps’, to limit the economic impact of the coronavirus, but Governor Mark Carney stated the bank would wait until its policy meeting later in the month before making any moves.
However the Fed surprised markets on Tuesday by immediately implementing a cut of 50 basis in an effort to shore up markets.
Japanese bank Nomura predicts this is likely to force the BoE’s hand. In a note to clients Nomura economists George Buckley and Chiara Zangarelli wrote:
‘We have, therefore, adjusted our view to … an emergency 25bp rate cut this week allowing the Bank time to formulate a plan for more targeted easing at the end of the month.’
Expect to see Sterling take another dive this week if this turns out to be correct.
Meanwhile, EUR investors will be keeping a close eye on the European Central Bank (ECB) as they look to gauge what its own response to the coronavirus might be.