GBP/EUR Exchange Rates: Coronavirus Threatens GBP, EUR Gains on Carry Trades

GBP/EUR Exchange Rates: Coronavirus Threatens GBP, EUR Gains on Carry Trades

The pound to euro exchange rate has suffered its largest decline since the flash crash observed in October 2016. The market is not completely ruling out the chances of more losses for the next few days as the euro continues to perform and the complex coronavirus still stands in the way of GBP making any significant comeback. Sterling is also under threat from the Brexit negotiations which are set to kick-off today. The UK and EU will meet to discuss the terms necessary for the UK to obtain a free trade deal. With the two parties clashing in previous meetings, the road ahead for the UK looks bumpy and as a result the GBP has lost strength over no-deal jitters from investors. Meanwhile, the resilient euro continues to perform and has gained off the back of the liquidation of ‘carry’ trades in emerging markets.

Pound set to struggle amid coronavirus outbreaks

The pound to euro exchange rate has suffered heavy losses recently, with declines not seen since the flash crash of October 2016. The losses have arisen due to the turmoil for risk assets like stocks and commodities, alongside the currencies which are linked to them. The market is predicting little respite for the pound in the week ahead. Added to this, recently developments have seen reports of the first case of coronavirus identified in England released. Chief Medical Officer Chris Whitty noted that this case could be the first sign of a ‘community outbreak’. The UK market is expecting things to get worse before they get better, and thus a further weakening in the global economy is expected as the number of coronavirus cases across the Europe and the US rise. The UK Prime Minister Boris Johnson noted that the coronavirus will be a challenge to deal with in the coming weeks, but he noted that with the help of the NHS, the UK will get through and beat it.

Euro labelled ‘resilient’ as it strives over competitors in shock turnaround

The euro suffered in previous weeks, but now looks to be mounting a turnaround. Last week saw the single currency trend higher than all major currencies apart from JPY. The euro’s biggest gains came after USD slumped, allowing the euro to climb higher amid the coronavirus fears. Emerging market currencies have been sold and stock markets have declined into ‘correction’ territory across Europe and North America and now face 20% losses that would signal a ‘bear market’. With the ECB’s negative interest rates setting EUR up to be a popular ‘funding currency’, investors have flocked to the currency in order to borrow and then sell in order to ‘fund’ bets on higher-yielding assets further afield. Buyers of the euro are utilising the currencies current position to their advantage.

Looking ahead, both currencies are expecting economic data throughout the week which will likely shift the direction of both GBP and EUR. Furthermore, GBP will likely see shifts in strength as the UK-EU talks continue throughout the week.

If you have an upcoming currency transfer and would like to learn more, you can contact me directly, Joseph Wright, on jxw@currencies.co.uk. I will endeavour to get back to you as soon as I can.