Prospect of Extended UK Shutdown Drags on Pound Euro (GBP/EUR) Exchange Rate
With the UK economy looking set to remain in a state of shutdown for the foreseeable future the Pound Sterling to Euro (GBP/EUR) exchange rate saw a fresh slump at the start of the week.
As a Downing Street spokesman highlighted the government’s concern over the possibility of a second wave of infections if restrictions are lifted too soon this reduced the odds of an imminent return to normal.
This news disappointed investors, given recent moves towards an easing in lockdown conditions in Germany, and cast a fresh shadow over the economic outlook.
A major slump in IHS Markit’s latest household finances index added to the bearish mood of Pound Sterling (GBP), showing that the perception of financial wellbeing had hit its lowest level since 2011.
EUR Exchange Rates Benefit from Widened Eurozone Trade Surplus
The Euro (EUR) found some support against its rivals, meanwhile, as February’s Eurozone trade surplus widened further than forecast.
News that the currency union went into the Covid-19 crisis with a stronger balance sheet helped to ease some of the anxiety over resilience of the economy, shoring up EUR exchange rates.
However, this sense of positivity was ultimately limited as market focus turned towards the impending Eurozone summit.
With the currency union still divided over the issue of shared debt the potential for fresh political upset limited the upside potential of the single currency at the start of the week.
Signs of Eurozone Economic Sentiment Stabilisation May Offer Euro Boost
Further losses could be in store for the GBP/EUR exchange rate tomorrow, though, if April’s ZEW economic sentiment surveys prove encouraging.
Any indication that the decline in confidence within Germany or the wider Eurozone is starting to bottom out may help to shore up the Euro against its rivals.
Even if the index remains in negative territory any moderate signs of improvement could be enough to lift the single currency in the short term.
On the other hand, if sentiment continues to weaken dramatically the Euro could return to the back foot as markets brace against the possibility of a deeper recession.
Softer UK Wage Growth Set to Weigh on GBP Exchange Rates
The mood towards the Pound could also sour on Tuesday unless February’s UK average weekly earnings figures better forecasts.
With wage growth looking set to ease slightly ahead of the Covid-19 lockdown confidence in the outlook of the UK economy appears on course for a fresh hit.
Lower levels of wage growth would further limit households’ ability to spend, further stifling the potential for a rebound in domestic activity.
Although February’s unemployment rate looks set to remain steady at 3.9%, as it predates the economic shutdown, this is unlikely to offer the GBP/EUR exchange rate any particular degree of support.