Pound Euro (GBP/EUR) Exchange Rate Stalls as BoE Reiterates Long Term Economic Risks of Covid-19

Bank of England Governor’s Warning Limits Pound Sterling Euro (GBP/EUR) Exchange Rate Support

A fresh warning from Bank of England (BoE) Governor Andrew Bailey left the Pound Sterling to Euro (GBP/EUR) exchange rate under pressure today.

As Bailey reiterated the significant risk of the economy suffering long-term damage as a result of the Covid-19 crisis investors saw little reason to favour Pound Sterling (GBP) this morning.

While Bailey still failed to rule out the possibility of cutting interest rates in negative territory, though, this was not enough to drive the GBP/EUR exchange rate significantly lower at this stage.

With the initial impact of yesterday’s underwhelming UK gross domestic product report fading the potential for further Pound losses diminished, keeping GBP exchange rates from pushing towards fresh lows.

Euro Shakes off Dovish ECB Economic Assessment

Although the European Central Bank’s (ECB) latest economic bulletin showed a rather cautious tone this put limited pressure on the Euro (EUR), meanwhile.

As ECB policymakers had already expressed similar sentiments on the economic outlook in recent days the impact of the bulletin proved muted.

Even so, the central bank looks set to maintain a relatively dovish outlook in the months ahead in order to shield the Eurozone economy from the worst of the impact of the Covid-19 pandemic.

Market expectations of monetary policy remaining looser for longer could help to keep the Euro on a steady footing, in spite of lingering fears of a deeper imminent Eurozone recession.

Sharp Decline in German Growth Set to Weigh on Euro Demand

Demand for the Euro (EUR) could weaken sharply ahead of the weekend, however, on the back of the first quarter German gross domestic product report.

Forecasts point towards a pronounced contraction in economic activity on the quarter, highlighting the negative impact that lockdown conditions have already had on the Eurozone’s powerhouse economy.

A -2.2% drop in growth could weigh heavily on EUR exchange rates, given that the bulk of the lockdown impact is likely to fall at the start of the second quarter.

Confirmation that the German economy is on track for a sharp recession in the first half of 2020 would give investors fresh incentive to sell out of the single currency, even though such a decline is widely anticipated.

EUR Exchange Rates Vulnerable to Weaker Eurozone GDP Report

Any negative revision to the second estimate of the Eurozone gross domestic product could also drag on the Euro on Friday.

Evidence that the currency union experienced a more pronounced decline in the face of Covid-19 based disruption may offer the GBP/EUR exchange rate a rallying point.

As long as the Eurozone looks set to deliver a major slowdown in growth the single currency may prove vulnerable to a fresh wave of selling pressure.

Lingering anxiety over the possibility of a second wave of infections in the wake of governments starting to ease their lockdown conditions could also put a dampener on EUR exchange rates.

Louisa Heath

Contact Louisa Heath