GBP/EUR Exchange Rate Dips as EU Recovery Fund Buoys Confidence in Union’s Integration
The Pound to Euro (GBP/EUR) exchange rate fell by -0.4% today, with the pairing currently trading around €1.099.
The Euro (EUR) has continued to benefit from signs of fiscal integration in the European Union (EU) after European leaders agreed on a recovery fund on Tuesday. As result, EUR investors are becoming more hopeful that the Eurozone economy could stage a recovery.
The €750 billion fund has been hailed as an unprecedented act of solidarity in the union, buoying confidence that cross-national integration could help the bloc’s economy in the months ahead.
Ugo Lancioni, head of global currency at Neuberger Berman, said:
‘This deal removed almost completely the risk of a European break-up, which has always been on the mind of investor.’
The Euro (EUR) has also benefited from a weakening US Dollar (USD) – the EUR’s biggest competitor – today after President Donald Trump admitted that the coronavirus outbreak ‘will get worse before it gets better’.
Consequently, investors have become more confident in the Euro as America continues to grapple with the Covid-19 crisis.
Kyle Rodda, an analyst at IG, comments:
‘The stronger EUR brought about broad-based weakness in the US Dollar, with the US Dollar Index threatening to retest the lows it recorded in late February.’
Pound (GBP) Sinks as Post-Brexit No-Deal Fears Increase
The Pound (GBP) suffered today on reports that the British government could be on the brink of abandoning hopes for a UK-EU post-Brexit trade deal. As a result, GBP traders are increasingly nervous that the UK could crash out of the EU in December this year.
Thu Lan Nguyen, an Emerging Market Analyst at Commerzbank, said:
‘The probability of a no-deal Brexit has increased significantly. For this reason, we are forecasting a weak Pound in the short term and only a very moderate recovery later in the year. In fact, there is a high risk that the Pound will suffer much more severe setbacks in the meantime than our forecasts suggest due to rising Brexit risks.’
GBP has suffered from growing fears for Britain’s economy, which is facing the double-threat of uncertainty over Brexit and Covid-19’s effect on the economy going forward.
The Bank of England (BoE) now has more ammunition to take the interest rates into negative territory, according to Jane Foley, the Senior Currency Strategist at Rabobank.
Consequently, the GBP/EUR exchange rate has suffered on growing pessimism for the British economy.
GBP/EUR Forecast: Could Weak German Consumer Confidence Weigh on the Single Currency?
Euro (EUR) investors will be looking ahead to tomorrow’s release of Germany’s GfK Consumer Confidence Survey for August. If this remains stuck in negative territory however, then we could see the single currency suffer.
Pound (GBP) traders will also be awaiting Thursday’s release of the UK’s GfK Consumer Confidence figure for July. However, with the figure set to remain subdued, it’s unlikely Sterling will benefit.
The GBP/EUR exchange rate will likely be dictated by the strength of the US Dollar this week. Investors will flock to the Euro (EUR) as concerns grow over America’s economic situation.