Update: GBP/EUR Exchange Rate Rises as Boris Johnson Rules Out ‘Circuit-Break’ Lockdown For Now
The Pound (GBP) rose this afternoon after PMQs between Prime Minister Boris Johnson and Labour Leader Keir Starmer saw Mr Johnson rule out a ‘circuit-break’ lockdown for the meantime.
Consequently, GBP investors heaved a sigh of relief as a national lockdown would have severely limited the British economy.
GBP also benefited from expectations that Boris Johnson will extend Brexit talks beyond October 15th, allowing more time for the UK and EU to secure a post-Brexit trade agreement.
Meanwhile, the Euro (EUR) fell after Eurozone economic data revealed a slowing down in the bloc’s industrial sector.
GBP/EUR Exchange Rate Falls as Johnson and Johnson Pause Covid-19 Vaccine Trials
The Pound to Euro (GBP/EUR) exchange rate fell by -0.3% this morning, with the pairing currently trading around €1.097.
The Euro (EUR) received a boost from risk-off markets today, with investors seeking out safe-haven currencies after the pharmaceutical giant Johnson and Johnson halted clinical trials of a Covid-19 vaccine.
Jeffrey Halley, the senior market analyst at OANDA, commented:
‘The emphasis is on temporary, though, and trials will more than likely resume quickly.
‘It does, however, highlight the realities of vaccine development, even in accelerated Covid-19 environment. Again, the pessimism will most likely be short-lived and has as much to do with extended short-term positioning, then a sea change in the race to develop a Covid-19 vaccine.’
In Eurozone economic data, today will see the release of August’s latest Industrial Production data.
Any indications that the Eurozone’s industrial sector is suffering would prove EUR-negative.
In other news, the International Monetary Fund (IMF) predicted a slower recovery for the Eurozone economy, predicting a staggering 8.3% contraction in 2020.
Consequently, EUR investors are remaining cautious as the Eurozone’s economy looks increasingly unstable as the Covid-19 infection rate rises throughout Europe.
Comparing second waves in the US and Eurozone, our forecast shows some growth in fatalities over the next few weeks in the Eurozone, with daily deaths reaching 489 by Nov 01. pic.twitter.com/4ynJyR5z2m
— Exante Data (@ExanteData) October 13, 2020
Pound (GBP) Sinks as UK Markets Brace for Tomorrow’s EU Summit for Brexit News
Sterling is subdued ahead of tomorrow’s EU Summit in which further news regarding Brexit is expected to emerge.
However, with fears of relations between the UK and the EU hitting a wall, GBP investors are concerned over the rising prospect of a no-deal Brexit.
Yesterday also saw reports of the European Union’s Chief Negotiator, Michel Barnier, mocking Prime Minister Boris Johnson’s ‘third deadline’ on trade deal negotiations.
Barnier also tweeted:
‘The EU will continue to work for a fair deal in the coming days and weeks.’
Britain’s economy continues to remain a concern, with rising Covid-19 cases threatening to derail the nation’s already struggling economic recovery.
Fiona Cincotta, an analyst at Gain Capital, said:
‘Let’s not forget that we are only in autumn, meaning that this could be a very long winter as governments struggle to get control of the spread of the virus. These measures could quickly derail the already very fragile economic recovery.’
Added to this, uncertainty over UK-EU relations over Brexit has also held back Sterling.
Meanwhile, GBP investors will be awaiting this afternoon’s speech from the Bank of England’s (BoE) Chief Economist Andy Haldane.
Any dovishness about the state of Britain’s flagging economy would prove GBP-negative.
Additionally, any mention – or hint of – negative interest rates would drag down the GBP/EUR exchange rate.
GBP/EUR Forecast: Could Brexit Woes and Rising UK Covid-19 Infections Drag Down Sterling?
Euro (EUR) traders will be awaiting tomorrow’s release of the latest Eurozone Trade Balance data for August.
Any indications that the Eurozone’s economy is falling behind would drag down the EUR/GBP exchange rate.
Pound (GBP) investors will also be eyeing tomorrow’s European Council Meeting for further news on Europe’s stance on Brexit.
If a post-Brexit trade deal appears increasingly unlikely, then we would see Sterling fall.
The GBP/EUR exchange rate will be driven by Brexit and Covid-19 news this week.
Any signs of increasing Covid-19 infections throughout the UK would prove GBP-negative.