Pound Euro (GBP/EUR) Exchange Rate Buoyed as Coronavirus Crisis Leaves Eurozone Economy on Life Support

GBP/EUR Exchange Rate Firms on Dire Eurozone PMI

The Pound to Euro (GBP/EUR) exchange rate is edging higher this morning as the Eurozone’s latest PMI figures shine a light on just how damaging the coronavirus lockdowns have been to the bloc’s economy.

At the time of writing the GBP/EUR exchange rate is trading at around €1.0793, up roughly 0.3% from this morning’s opening levels.

Euro (EUR) Battered by Abysmal PMI Figures

The Euro (EUR) has taken a hit this morning as markets react to some particularly dire PMI figures from the Eurozone as the coronavirus crisis brought economic activity in the bloc to a screeching halt this month.

According to preliminary data published by IHS Markit, the Eurozone’s composite PMI plummeted from 51.6 to just 31.4 in March, the worst reading on record.

The contraction in business activity was mostly attributed to a stunning collapse of demand in the services sector, as tourism evaporated amidst the lockdowns imposed by Eurozone governments.

Such an unpresented collapse in private sector growth is thought to put the Eurozone economy on track to contract a whopping 2% in the first quarter.

Chris Williamson, Chief Business Economist at IHS Markit comments:

‘Business activity across the eurozone collapsed in March to an extent far exceeding that seen even at the height of the global financial crisis. Steep downturns were seen in France, Germany and across the rest of the euro area as governments took increasingly tough measures to contain the spread of the coronavirus.

‘The March PMI is indicative of GDP slumping at a quarterly rate of around 2%, and clearly there’s scope for the downturn to intensify further as even more draconian policies to deal with the virus are potentially implemented in coming months.’

With Europe’s coronavirus outbreak showing few signs of subsiding, it seems clear that the contraction in business activity will only deepen next month.

Pound (GBP) Capped by Gloomy PMIs

At the same time, the Pound (GBP) is showing only limited gains against the Euro (EUR) this morning as the UK’s own PMI’s show the UK is far from immune to the damaging effects of the coronavirus.

IHS Markit reports the UK’s composite PMI tumbled from 53.0 to 37.1 this month, led by a sharp drop in activity in the service sector.

While the UK government has been slower in implementing its lockdown measures than its European neighbours, helping to limit some of the disruption to business activity this is still the worst reading in the survey’s 22-year history.

With the UK finally imposing more stringent quarantine measures this week, analysts warn the outlook looks even gloomier.

Duncan Brock, Group Director at CIPS, warns:

‘As more serious measures are considered by the UK Government, the effect of coronavirus on businesses will get much worse. Even with interest rates cuts and an injection of cash into the economy to support struggling businesses, the inevitable rise in unemployment is sure to follow along with business failures especially amongst SMEs.’

GBP/EUR Exchange Rate Forecast: More Coronavirus Chaos Ahead

Looking ahead, it’s safe to assume as the coronavirus crisis will continued to dominate movement in the Pound to Euro (GBP/EUR) exchange rate for the time being, likely infusing fresh volatility in the pairing.

Matthew Andrews

Contact Matthew Andrews