GBP/EUR Exchange Rate Nosedives on Coronavirus Fears
The Pound to Euro (GBP/EUR) exchange rate briefly fell below €1.13 on Thursday as investors grew increasingly concerned about the UK government potentially moving into the ‘delay’ phase of its coronavirus plans.
GBP Investors fear this result in significant disruption to the UK economy as it is likely to involve school closures and restrictions over public events.
Meanwhile, the Euro is trading in a mixed range this afternoon following the European Central Bank’s (ECB) latest policy decision.
This saw the bank expand its quantitative easing programme by €10bn a month as it warned the coronavirus has led to a ‘considerable worsening of the economic outlook’.
BREAKING: European Central Bank announces stimulus package—including bond purchases and loans for banks, but no interest-rate cut—to shield the economy from the impact of coronavirushttps://t.co/DjXLDJFgo8 pic.twitter.com/9RnMJNM9Eb
— Bloomberg Brexit (@Brexit) March 12, 2020
GBP/EUR Exchange Rate Sinks Ahead of ECB Rate Decision
The Pound to Euro (GBP/EUR) exchange rate is on the defensive again this morning, with all eyes on the European Central Bank (ECB) as it prepares to deliver its response to the coronavirus crisis.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1344, down roughly 0.3% from this morning’s opening rate and just shy of a five-month low.
Euro (EUR) Firms as ECB Stimulus Measures in Focus
The Euro (EUR) is ticking higher against the Pound (GBP) and many of its other peers this morning as EUR investors brace for the ECB to announce its coronavirus stimulus measures later this afternoon.
As the coronavirus crisis continues to rock markets, the ECB is the last of the major central banks to take steps to limit the economic impact of the disease.
However this looks set to change once the bank concludes its policy meeting later this afternoon, in light of the clear risk that the coronavirus will plunge parts of the Eurozone into a recession this year.
The ECB’s response is expected to include another cut to the bank’s deposit rate and an increase to its quantitative easing programme.
Dirk Schumacher, head of European macro research at Natixis suggests:
‘We think that the ECB will feel in the end compelled to respond with yet another package of measures at its policy meeting … not least to signal its readiness to address any tightening of financial conditions before it becomes ‘entrenched’.
‘More specifically, we expect a 10 basis point cut in the deposit rate, an increase of the (asset) purchase program to 40 billion (euros) per month, and a new targeted funding operation for banks.’
Ultimately however ECB President, Christine Lagarde’s options remain severely limited given interest rates have been at zero for some time.
As a result we are likely to see Lagarde repeat her call for EU leaders to step up and support the ECB through increasing fiscal spending.
Pound (GBP) Slumps as Boris Johnson to Chair Emergency Coronavirus Meeting
Meanwhile, the Pound (GBP) is on the defensive this morning as Prime Minister Boris Johnson prepares to chair a meeting of the emergency ‘Cobra’ committee to discuss stepping up the UK’s coronavirus response.
Observers expect this to involve the UK government moving from attempting to contain the coronavirus to the ‘delay’ phase.
This could see schools being closed and the implementation of ‘social distancing’ measures, such as restricting public gatherings and advising people to work from home where possible.
Switching to the ‘delay’ phase will mark a major step up in the UK government’s coronavirus response, and could weaken the Pound on fears the resulting disruption will hit the UK economy.
GBP/EUR Exchange Rate Forecast: Coronavirus Panic to Continue to Grip Markets
Looking ahead, we expect the coronavirus to continue to dominate market sentiment for the foreseeable future.
As a result trade in the Pound to Euro (GBP/EUR) exchange rate is likely to remain volatile, as markets remain wary of the diseases potential economic impact on both the UK and the Eurozone.