Pound Euro (GBP/EUR) Exchange Rate Slumps over Potential for Covid-19 Second Wave

Fears of Second Wave of Covid-19 Infections Dents Pound Euro (GBP/EUR) Exchange Rate

As markets reacted to Boris Johnson’s Sunday speech with disappointment the Pound Sterling to Euro (GBP/EUR) exchange rate slipped lower.

Fears of a potential second wave of infections picked up as both Germany and South Korea reported an increase in Covid-19 cases following their own easing of lockdown conditions.

This left Pound Sterling (GBP) on a softer footing against its rivals as investors weighed up the risk of the economy facing even greater disruption in the event of measures having to be reinstated.

A general lack of clarity over the immediate impact of the first phase of easing in restrictions also limited the potential for GBP exchange rate support, meanwhile.

Euro Softens as Italian Industrial Production Crashes

Even so, demand for the Euro (EUR) faltered on the back of Italy’s March industrial production figures.

As output crashed -28.4% on the month, far exceeding forecasts, worries over the health of the Italian economy picked up once again.

The risk of the first quarter Italian gross domestic product seeing a negative revision put a dampener on EUR exchange rates as the odds of a deeper recession appeared to grow.

However, with markets in an increasingly risk aversion mood the single currency was able to hold onto its footing against many of the majors in spite of the bearish data.

Growing Anticipation for UK GDP Report to Weigh on GBP/EUR Exchange Rate

The GBP/EUR exchange rate looks set to remain on the back foot in the near term as investors brace for the release of the first quarter UK gross domestic product report on Wednesday.

Forecasts point towards a major downturn in growth momentum on the quarter, with markets expecting to see the quarterly growth rate plunge to -2.5%.

As long as the economy experiences a significant slowdown in the first quarter the threat of an imminent recession could encourage the Pound to shed further ground.

On the other hand, if the gross domestic product shows a smaller decline than anticipated this could offer the GBP/EUR exchange rate a potential rallying point.

Even so, until investors see reason to hope that the economy will bounce back in the second half of the year demand for the Pound is still likely to remain muted.

Eurozone Industrial Production Decline May Add to Euro Vulnerability

On the heels of Italy’s poor industrial production result hopes for the overall Eurozone figures weakened.

A deeper deterioration in manufacturing sector performance could undermine the appeal of the Euro, leaving EUR exchange rates vulnerable to selling pressure.

Comments from European Central Bank (ECB) policymakers may also spark volatility for the single currency this week.

With the central bank’s authority undermined by the recent German constitutional court ruling investors are searching for reassurance that the ECB remains committed to its monetary policy course.

Louisa Heath

Contact Louisa Heath