The euro is at present in a vulnerable position. Inner fighting in the bloc is causing investor concern. There are regions in the Eurozone that are in great need of emergency funding due to the Coronavirus situation. Spain and Italy are particularly in need.
The proposal is for European Union members to take on a collective debt through the use of Corona bonds. Some members of the EU are reluctant to take on this collective debt, Germany and the Netherlands are particularly against taking on further debt burdens.
There stance can be in some ways justified by looking at what happened to Greece when the International Monetary Fund (IMF) had to step in. Although this was caused largely by a lot of the business in Greece going through cash in hand with no tax being paid, COVID-19 debt is probably a much larger debt to take on.
This situation does little for the relationship between EU members. With members of the bloc at logger heads it is does not bode well moving forward. Could it be the case that other EU members follow the direction of the United Kingdom and hold a referendum to leave?
Italy would already be a prime candidate having already expressed discontentment with EU funding following the bridge collapse last year. If a domino effect was to occur it could be the end of the EU later down the road.
Despite Euro woes Sterling is also suffering. The UK has been appalling in containing the virus, it is as if we are a third world country. This does not bode well for the economy and if lock down measures are eased too early we may see a second wave of the virus that will damage the UK economy even further. We have already seen a rise in cases following an easing of measures in Germany.
Ongoing Brexit Negotiations Likely to Impact Euro to Pound Exchange Rates
There is also the small matter of Brexit to contend with. Boris is still adamant he wants a deal done by the end of the year and there will be no extension despite the COVID-19 outbreak. This is a dangerous game, Boris Johnson may think it is wise to negotiate a deal while the opposition is locked in its own inner fighting and when there is a limited time scale, but let us not forget how long Theresa May was flogging a dead horse. Boris may have the aspirations of beating the Corona virus personally and then for the nation and after that getting a Brexit deal through. The problem is if he sticks to his guns and time runs out we are looking at a no deal scenario, a huge concern among investors.
While a no deal scenario is on the table the Pound will remain vulnerable. 1.15 is holding up as a resistance point, now for nearly 2 months on GBPEUR and we could see it hold hold up for the foreseeable unless we have some form of clarity on Brexit.
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