With many Eurozone lockdowns looking to be eased this week and the next, the volatility that was seen back in March was considerably reduced in April and could continue into May as the initial shock of the Coronavirus has lessened. For example, April’s trading levels did not have events such as the GBPEUR interbank exchange rate of 1.05 on the 18th March jump up to 1.14 within a couple of weeks. Although, it does seem that the reduced lockdown measures have been taken positively by the markets as last Thursday saw a 1.05% drop in the markets overnight as the euro strengthened against the pound by shifting from its key resistance level of 1.15 down to 1.138. Last weekend seems to have tapered rates off with very little movement away from the 1.138 level.
On the United States dollar side, the euro did not fare so well as it dropped 0.5 cents from its 2-week high of 1.098 down to 1.093 at the start of this morning’s trading. Similarly, to the GBPEUR, the EURUSD currency pairing has also experienced less volatile trading conditions as the rate range witnessed in April has only moved by 2.1 cents between its trough at 1.077 and its peak at 1.098. This represents less than a 2% shift in rates month-to month showing a lot less volatility than in March.
Many Eurozone lockdowns to be Eased in Coming Weeks
The month of May could have the ability to be more volatile than April though with many lockdowns being lifted. Today, Italy, one of the worst virus-hit European nations, will end its 8-week lockdown which would likely be watched cautiously for any spikes in COVID-19 cases amongst fears that a second wave of cases could occur. Should there be any concerns that the lockdown was eased prematurely, euro weakness could occur and the potential to re-introduce further nation-wide measures to counteract the virus could be undertaken.
The US is also looking to follow its European counterpart imminently as US President Donald Trump has announced that he is confident about re-opening the country despite it being the most heavily impacted nation topping 67,000 deaths and circa 1.2mn cases but also with projections from Trump estimating that the total deaths could surpass 100k. No country so far has experienced such controversy about how soon it should end its lockdown and could cause the EURUSD to make up the ground it lost over the weekend.
Further developments that could affect the EURUSD interbank exchange rate this month could come in the form of the US’ allegations that the Coronavirus was developed in a Wuhan lab and leaked accidentally. Tensions between China and many nations besides the US including its neighbouring country Australia, many EU member states and indeed the global arena are calling for an international review into the how the outbreak began. This resulted in economic threats from China saying that it would boycott many services and products from these nations in retaliation on account of their national security being threatened.
Economic Data From the ECB This Week
The Eurozone seemed to have released all of its economic data last week as all of significance for the single-currency this week will come in the form of the European Central Bank (ECB) economic growth forecasts on Tuesday. This will outline where the Bloc is set to be heading financially but with estimations from chief European economist, Mark Wall from Deutsche Bank suggesting that unemployment could double or treble from the 7% level before the pandemic hit, the report is unlikely to pull up anything positive for the euro.
Last week’s ECB Gross Domestic Product report came in at a record-breaking 3.8% contraction for the 19-member states it used for the release which was the lowest reading since records began in 1995. ECB President Christine Lagarde also announced that Eurozone GDP could fall to even lower levels with predictions that GDP could fall by 5-12% this year which could devastate already heavily indebted countries such as Greece and Spain. Surprisingly, this was announced on Thursday – the same day that the euro strengthened against the pound by more than 1% as mentioned before, could suggest that the markets have not quite taken into account the severity of the release. However, it is also possible that considering global GDP is expected to contract by 3% this year according to the International Monetary Fund, it could just be a sign of the times that heavy economic losses are starting to be treated as the new normal as many sources are pointing to the global economy is headed for the Great Depression of the 1930’s.
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