Business Currency News: Coronavirus Panic Prompts Market Chaos, Fed Rate Speculation Weakens USD

GBP/EUR Exchange Rate: Sterling Sinks to Five-Week Low

The Pound to Euro (GBP/EUR) exchange rate has fallen over the past week, hitting its lowest levels since October amid Brexit uncertainty and Bank of England (BoE) rate speculation.

In terms of Brexit, GBP investors are growing increasingly worried about the potential for a no-deal Brexit as the first round of trade talks between the UK and EU highlighted the significant divisions between the two sides.

Also influencing the GBP/EUR exchange rate were expectations for a BoE rate cut.

Although markets appeared to be initially caught out when the bank announced an emergency cut on Wednesday, the move was largely priced in already.

Looking ahead, while GBP investors remain wary of potential Brexit headlines in the coming week, traders are likely to remain focused on coronavirus for the time being.


GBP/USD Exchange Rate: Pound Steady as UK Budget Promises Fiscal Response to Coronavirus

After accelerating to one-month high at the start of this week, the GBP/USD exchange rate has seen its gains eroded by a rebound in the US Dollar.

However, the Pound found its feet again after the publication of the UK’s long-awaited Spring Budget.

This saw Chancellor Rishi Sunak pledge £30bn in immediate fiscal stimulus to help cushion the UK economy from the impact of the coronavirus.

The Chancellor also outlined plans to boost spending by £175bn over the next five years as part of the government’s promise to ‘level up’ the UK.

It remains to be seen whether this will provide any lasting support for the GBP/USD exchange rate, particularly as investors have more time to digest the Budget.


USD/GBP Exchange Rate: Fed Rate Cut Speculation Drags on the US Dollar

The USD/GBP exchange rate came under significant pressure though the second half of last week’s session as the US Dollar was undermined by a sharp drop in US bond yields.

This came as skittish investors piled into government debt, spooked by the coronavirus and expectations it will prompt the Federal Reserve to slash interest rates to near zero at its next policy meeting after implementing an emergency cut at the start of last week.

These losses were then extended on Monday after markets went into meltdown following a collapse in oil prices.

But US Dollar was quick to bounce back, energised by Donald Trump’s promises of ‘big’ tax cuts to help protect the US economy from the coronavirus.

It remains to be seen whether Trump will be able to get the necessary support to pass his stimulus measures, with a number of Republicans thought to be strongly opposed to his plans for temporary payroll tax cut.

Expect to see the US Dollar come under renewed pressure if Trump’s measures are watered down by Congress.


EUR/USD Exchange Rate: Euro Soars Amid USD Sell-Off

The EUR/USD exchange rate climbed to a new one-year high, with the single currency benefiting significantly from a sharp sell-off of the US Dollar.

US Dollar weakness has helped the Euro soar in spite of growing concerns that parts of the Eurozone will slip into a recession this year as a consequence of the coronavirus.

EUR investors are particularly concerned about Italy, where the government’s drastic move to quarantine the entire country in an effort to stop the spread of the largest coronavirus outbreak outside of China is likely to cripple the nation’s already weak economy.

The European Central Bank’s latest policy decision will be announced on Thursday.

The ECB is expected to ease its monetary policy to help support the Eurozone against the coronavirus, but with interest rates already at zero its options are limited.

If the Euro is to sustain its gains it will be up to Eurozone leaders to step up with fiscal stimulus measures of their own.


Matthew Andrews

Contact Matthew Andrews