Sterling suffered losses yesterday following a statement from Bank of England Chief Economist, Andy Haldane. He dampened hopes of a quick recovery following the COVID-19 outbreak. He believes consumers may not return to their usual spending habits for some time.
There was also a sharp rise in deaths associated to the virus. This may not be as alarming as it appears as apparently it is difficult to collate data over the weekend.
Sterling will remain fragile as during time of global economic uncertainty the pound is not the destination of choice. It does not have safe haven status as there is a large imbalance between imports and exports. There is also Brexit to contend with. Boris Johnson has yet to announce an extension to trade talks due to end at the end of the year. It could be the case that the PM expects to beat the Coronavirus both personally and for the country and then get a trade deal in place for Brexit by the end of the year and turn it into a positive. Johnson could also be using the deadline as ammunition to get a deal through, whatever the reasoning while a no deal scenario remains on the table the pound will remain vulnerable.
The euro is not necessarily having a great time. EU members are at logger heads over emergency funding during the outbreak. There has been €500bln pledged to the economy, but this is deemed far short of what is required. The US have pumped in $2.2trl in comparison.
There are ongoing negotiations as to further aid but Germany and the Netherlands are against taking on a collective debt with the rest of the EU through Coronabonds. It seems a resolution is not forthcoming, but if an agreement can be made expect euro strength.
It could be the case as mentioned last week that 1.15 becomes a firm resistance point as it did for 18 months during the Brexit process. Get in touch using the form below to discuss how these factors will impact the EURGBP exchange rate in the coming weeks and months.