Pound Euro (GBP/EUR) Exchange Rate Recovers from Eight-Month Low on BoE Promise

Pledge from New Bank of England Governor Lifts Pound Sterling Euro (GBP/EUR) Exchange Rate

After dipping to its lowest level since August the Pound Sterling to Euro (GBP/EUR) exchange rate recovered some of its lost ground.

Comments from new Bank of England (BoE) governor Andrew Bailey helped to shore up Pound Sterling (GBP) this morning as he promised ‘prompt action’ to protect the UK economy.

While this suggests that the possibility of another interest rate cut remains on the table the GBP/EUR exchange rate found some renewed traction in the wake of the comments.

Hopes that the BoE will act to prevent the UK economy suffering significant damage as a result of the Covid-19 outbreak limited the potential for further Pound selling at this juncture.

Fears of Eurozone Economic Slump Push EUR Exchange Rates Lower

Growing anxiety over the outlook of the Eurozone economy kept a dampener on the Euro (EUR), meanwhile.

With Italy looking increasingly stricken by Covid-19 the threat of it dragging the rest of the currency union into a potential recession continued to pick up.

The disruption caused by the pandemic looks set to exacerbate the existing signs of weakness within the Eurozone, adding to the negative impact of the recent global trade slowdown.

As long as markets see high odds of growth slowing across the Eurozone the appeal of the Euro could prove limited, with the impact of local elections in both France and Germany also looking set to weigh on sentiment.

Pound Looks for Boost on Stronger UK Wage Growth

The GBP/EUR exchange rate could recover further ground tomorrow if the latest UK average weekly earnings figures demonstrate fresh growth.

Evidence that wage growth picked up in February may help to reduce market worries over the economic outlook, given the role that consumer spending has previously had in shoring up growth.

Even so, unless wages look set to experience further growth in the months ahead any positive impact from the data could still prove limited in nature.

With stronger wage growth unlikely to alter the current policy outlook of the BoE the potential for any significant GBP exchange rate rally looks muted.

Slump in Eurozone Sentiment Forecast to Drag on Euro

Expectations for March’s ZEW economic sentiment index point towards a major decline on the month, paving the way for additional Euro selling pressure.

The extent of Covid-19’s impact on sentiment across the Eurozone could push the single currency sharply lower across the board as fears of a first quarter slowdown grow.

Unless confidence shows some signs of resilience in the face of the economic disruption EUR exchange rates look set to shed further ground.

However, the Euro’s downside potential could ease as the political response to the pandemic continues to unfold.

As long as Eurozone governments demonstrate a willingness to act through fiscal policy in order to shore up domestic growth this may limit the potential for further GBP/EUR exchange rate gains.

Louisa Heath

Contact Louisa Heath