The pound has given up much of its recent gains over the past couple of weeks, with the euro to pound rate rising on almost a daily basis at the moment.
At the time of writing, the euro to pound pair is floating just below the key 0.90 benchmark, with the high of the day so far hitting 0.8989 which demonstrates that 0.90 could be tested soon. As it is quite a round number, we could see some support for the pound at these levels but as we’ve seen in the past should the pair break above it there’s a chance they could consolidate there.
Political Unrest in the UK Surrounding COVID-19
The ongoing saga surrounding Dominic Cummings is yet to pass, with pressure mounting on his position as Chief Advisor to the Prime Minister. A number of Tories have suggested he should step down as a result of his actions as they believe he broke lockdown rules in relation to the COVID-19 virus but he has remained unapologetic almost in his response, with PM Boris Johnson suggesting the country should move on from this episode.
This pressure on the government has applied added stress to the pound at a time where it was already struggling. The UK has been one of the worst affected nations in terms of the number of COVID-19 cases and deaths, and the economy is showing signs of a dramatic slowdown with UK Chancellor Rishi Sunak stating that there could be some ‘permanent scaring’ to the economy due to the lockdown rules. Also, 3-month GILTS, which are government issued bonds were selling at a negative and this fuelled talk of the potential for negative interest rates in the UK. At the moment the Bank of England has already cut interest rates to record lows of 0.1% and usually at times of Central Bank interest rate cuts the underlying currency tends to drop so this added downward pressure onto the pound.
Adding to the existing downward pressure on the pound over the past few days, yesterday David Frost (the PM’s europe Advisor) reiterated that there won’t be an extension to Brexit, and that the EU will need to evolve its position in order for the Brexit deal to be reached. As we’ve seen over the past few years whenever there are talks of UK and EU negotiators being at loggerheads the pound tends to fall, and this helped the EURGBP rate to climb.
Whilst the pound has been weakening the euro has been climbing off the back of some positive news from the european Commission. A €750bn plan to prop up the ailing economies of the EU, especially those worst hit by the COVID-19 virus such as Spain and Italy, has been announced which should help boost the Eurozone. There has been a number of disagreements between the trading bloc regarding this arrangement, but all appears to be well now resulting in a stronger euro as this could be a positive moving forward.
Bank of England Meeting Today
Later today there could be movement for the euro to pound pair as the Bank of England’s Monetary Policy Committee’s Michael Saunders will be speaking around 11:00. Those tuning in will be looking out for any allusions to future monetary policy, especially surrounding interest rates and the possibility of negative interest rates so it’s worth being aware of this if you’re concerned regarding the pound’s value.
To end the week perhaps the key economic updates that could influence the euro to pound rate revolves around both German specific, as well as general eurozone inflation levels which will both be released today (German) and tomorrow (eurozone) around midday. With the lockdown the markets will be expecting to see a drop but if the figures deviate from the consensus, we could see market movement, especially if the drop isn’t as steep as feared so these data releases are worth following.
Next week there will be the release of UK manufacturing and services data which is likely to be followed closely, as investors will be keen to see how the UK economy is performing during the lockdown, so feel free to get in touch if you wish to be kept updated regarding these releases using the form below.