GBP/EUR Exchange Rate Subdued as EU Fund Bolsters Hopes for Speedy Recovery
The Pound to Euro (GBP/EUR) exchange rate is trading close to a two-month low this morning as the single currency remains well supported by the EU’s proposal for a €750bn coronavirus recovery fund.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1121, virtually unchanged from this morning’s opening levels.
Euro (EUR) Remains Buoyed by Optimism for €750bn EU Relief Fund
The Euro (EUR) looks to test the £0.90 barrier against the Pound (GBP) today as the mood in Europe remains upbeat, following the announcement of the EU’s plan for an ambitious coronavirus recovery fund.
Dubbed the Next Generation EU plan, the European Commission has proposed a €750bn relief fund to aid in Europe’s economic recovery from the coronavirus pandemic.
European Commission President @vonderleyen on Wednesday outlined a $825 billion rescue program to help the EU with fallout from #Covid19.
For more via @business: https://t.co/dfn6z3pxv9 pic.twitter.com/Tmyt6nihJW
— Bloomberg Originals (@bbgoriginals) May 28, 2020
Detailing the plan on Wednesday, President Ursula von der Leyen spoke of this being ‘Europe’s moment’ adding:
‘Things we take for granted are being questioned. None of that can be fixed by any single country alone. This is about all of us and it is way bigger than any of us.’
While the plan still needs the backing from member states, it’s expected to be passed with the with minimal resistance.
The new fund helps put to rest some of the concerns that the EU’s economic response to the Covid-19 outbreak had been lacking and bolsters hopes for a relatively quick rebound in the Eurozone economy.
Pound (GBP) Sidelined by Brexit Concerns
At the same time, the Pound (GBP) is struggling to find momentum this morning as Brexit uncertainty continues to weigh on Sterling sentiment.
Despite signs the EU is willing to make some concessions in order to get a deal, GBP investors are growing increasingly worried about the prospect of a no deal as the EU and UK prepare to resume talks next week.
This will be the last round of talks before a ‘high-level conference’ in June in which both sides will assess the current status of negotiations, with the UK having previously threatened to walk away if enough progress has not been made.
Economists at Danske Bank warn there is a very real risk of a no-deal scenario.
‘The UK has said that if there is no breakthrough this summer, it will begin planning for ‘no deal’ as a base case.
‘Crucially, despite the COVID-19 outbreak and no breakthrough, we do not believe the UK will ask for an extension of the transition period. The lack of progress will mean investors start to reprice a higher probability of no deal, leading to a weaker GBP.’
GBP/EUR Exchange Rate Forecast: Slump in Eurozone Inflation to Weaken the Euro?
Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may tick higher at the end of this week’s session with the publication of the Eurozone’s consumer price index (CPI).
Economists forecast May’s preliminary figures will reveal inflation in the Eurozone plummeted to just 0.1%, well below the European Central Bank’s (ECB) target of 2% and dangerously close to deflation.
Meanwhile, the Pound may struggle to captialise on any weakness in the Euro as concerns over Brexit and speculation that the Bank of England could slash interest rates into negative territory are likely to hang over the currency.