Plunge in German Consumer Confidence Drives Pound Euro (GBP/EUR) Exchange Rate Higher
An unexpectedly sharp slump in April’s German GfK consumer confidence index encouraged the Pound Sterling to Euro (GBP/EUR) exchange rate to push higher this morning.
While forecasts had pointed towards a dip in sentiment, thanks to the impact of the Covid-19 crisis, the plunge from 8.3 to 2.7 still caught investors off guard.
This decline took the index to its lowest level since the financial crisis, highlighting the challenges that the Eurozone’s powerhouse economy faces moving into the second quarter.
As Rolf Bürkl of GfK noted:
‘Retailers, manufacturers and service providers must prepare for a recession.
‘How severe this recession will be will ultimately depend on when the economy finds its way back to normality. A reliable forecast regarding consumption can only be made once we can predict how long the protective measures to combat corona will remain in place.’
Euro Fails to Benefit as ECB Drops Cap on Bond Purchases
While the European Central Bank (ECB) announced that it will drop its cap on the number of bonds it can purchase from any given Eurozone country this failed to shore up the Euro (EUR).
Although the move paves the way for a far higher degree of monetary stimulus, underlining the central bank’s commitment to supporting the currency union, the move was not enough to stir market sentiment.
As the decision potentially leaves the ECB open to a legal challenge EUR exchange rates remained on the back foot.
With the impact of the ECB’s emergency policy intervention already fading the potential for a Euro rally looked distinctly limited.
Lack of BoE Action Limits Potential for Pound Sterling Gains
As markets see little chance of fresh policy action at the Bank of England’s (BoE) scheduled March meeting Pound Sterling (GBP) held onto a steady footing.
After the pair of emergency interest rate cuts seen in the last fortnight, there appears little potential for policymakers to loosen monetary policy further at this stage.
Even so, investors are keen to gain fresh insight into the current outlook of the BoE and the potential for future action.
A fresh affirmation of the central bank’s willingness to act further in support of the UK economy could prompt some renewed volatility for the GBP/EUR exchange rate.
GBP/EUR Exchange Rate Remains Sensitive to Covid-19 Developments
If market anxiety over the Covid-19 crisis shows further signs of easing ahead of the weekend this may boost the GBP/EUR exchange rate further.
In spite of the vulnerability of the Eurozone economy the Euro has acted as something of a safe-haven asset against some of its more risk-sensitive rivals.
As long as the global reaction to the pandemic continues to pick up and hopes of an economic rebound build this should limit the potential for Pound losses in the near term.
Any fresh deterioration of the virus situation in the major Eurozone economies could put a dampener on the Euro, meanwhile.