GBP/EUR Exchange Rate Buoyed as BoE Slashes Rates to Record Low
The Pound to Euro (GBP/EUR) exchange rate is ticking higher this morning as markets respond to the Bank of England’s (BoE) emergency rate cut.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1469, up roughly 0.5% from this morning’s opening rate.
Pound (GBP) Firms on Stimulus Hopes
The Pound (GBP) is trending higher this morning in the wake of an unscheduled rate cut from the BoE, as the Bank seeks to limit the economic impact of the coronavirus.
While the surprise move to slash rates to a record low of 0.25%, initially sent Sterling lower, the currency was quick to bounce back as investors consider the timing of the cut.
Governor Mark Carney says the Bank of England "will take all necessary further steps to support the U.K. economy" through the coronavirus outbreak, after its first emergency rate cut since the financial crisishttps://t.co/xclCCZpQtu pic.twitter.com/4tj23j5iXC
— Bloomberg UK (@BloombergUK) March 11, 2020
With the cut being announced just hours before the government’s Budget, there appears to be clear effort between the Bank and Treasury to coordinate monetary and fiscal stimulus, which together should deliver a far more impactful boost to growth than when made individually.
Kallum Pickering, senior economist at Berenberg Bank, comments:
‘That the BoE chose to announce its stimulus on the same day as the budget is telling. Policymakers are clearly concerned about the risks ahead. The joint action reflects the intention to send a big message that policymakers are prepared to take aggressive and pre-emptive steps to support the economy.’
This optimism has seen GBP investors largely shrug off this morning’s GDP figures, which reported UK economic growth stagnated in the three months to January.
Euro (EUR) Subdued as Lagarde Warns Eurozone Faces 2008-Level Crisis
Meanwhile, the Euro (EUR) is facing some headwinds this morning after the President of the European Central Bank (ECB), Christine Lagarde issued a stark warning to European leaders.
Lagarde warned that the economic shock of the coronavirus could be comparative to that of the 2008 financial crisis unless leaders start to take urgent action.
The ECB has repeatedly called for Eurozone governments to support its stimulus efforts through increased fiscal spending, but so far this has largely fallen on deaf ears.
The coronavirus is already expected to see parts of the Eurozone fall into recession this year, particularly Italy, where the government’s decision to quarantine the entire country in an effort to curb Europe’s largest outbreak is likely to have major economic repercussions.
The ECB will deliver its latest policy decision tomorrow, but with interest rates already at zero the ECB’s options for stimulus are limited.
GBP/EUR Exchange Rate Forecast: All Eyes Now on UK Budget
Looking ahead, we expect the the Pound to Euro (GBP/EUR) exchange rate to maintain its upward trajectory through today’s session with the release of the UK’s Budget at 12:30 GMT.
Economists are predicting Chancellor Rishi Sunak will announce a plans for a significant increase in government spending, with predictions public investment will increase from 2.2% of GDP to 3%.
In the short-term this is expected to include measures for countering the economic shock of the coronavirus, while also including more long-term spending plans aimed at ‘levelling up’ the UK.