Euro Exchange Rate Forecast – The Week Ahead

EUR GBP Slumps After ECB Stimulus Comments

Last week was a busy and volatile week for euro exchange rates with some solid gains against the U.S dollar up to an interbank exchange rate of 1.1290 and a week of fairly sharp movements against the euro that pretty much finished off where it started with interbank exchange rates sitting around the 0.8890 at the end of the trading week.

So What Lies Ahead for Euro Exchange Rates This Week?

There is so much going on around the world at the moment it really is almost an impossible task to accurately predict a strong move either way for euro exchange rates this week. Putting into perspective we currently have a global pandemic, serious political instability and civil unrest in the U.S which is also starting to have a ripple effect around several other areas in the world, we have a stratospheric number of jobs being lost around the globe and one of the hardest global recessions in recent times on the way.

Today we have Christine Lagarde testifying to the European Parliament, expectations are that her tone will remain the same however there could be a nod towards the need for further fiscal stimulus. On Wednesday we have the Federal Reserve interest rate decision and monetary policy statement, a dovish tone is still expected but with EUR USD being the largest traded currency pairing news from the U.S can have quite a large impact on the value of Euro so this is one to keep a close eye on.

Is a Second Phase of Coronavirus a Possibility?

The pandemic seems to be the largest contributor to global attitude to risk along with the issues in the U.S. One thing that has come out from over in the U.S is that some southern states, notably Florida have seen their largest daily cases of covid-19 since March, so there are fears of a second phase of coronavirus which could mean that we are due to have a second bout of severe volatility like we saw in the middle of March.

When this occurred we saw euro exchange rates make strong gains against currencies such as sterling and the Australian dollar, as investors and speculators ran for cover and tried to avoid those currencies deemed as a risk. The Australian dollar has almost always fallen in this category and the pound most recently seems to have followed suit, most likely due to the grey cloud of a potential no deal Brexit hanging over the head of the U.K, which has been causing investors to sit tight and hold their distance from the pound for a couple of years now.

EU/UK Brexit Talks Still at Stalemate

Another round of negotiations last week didn’t bring a huge amount of change and with talks now not due to restart until the end of June/beginning of July it is likely this topic may go quiet until an EU summit which is expected next week.

The expectations are that there will be no extension to the December 31st deadline requested by the U.K Government and this may lead to sterling weakness and gains for the euro, as further ‘no deal Brexit’ concerns come back into the spotlight and investors steer clear of the pound until a clearer picture lies ahead.

Stimulus measures by Germany and the Eurozone to the tone of 130 Billion and 660 Billion respectively have done little to change the value of euro and there are still grave concerns about the strength and robustness of a number of economies within the Eurozone and how they may cope once the new normal is operational.

With Spain and Italy being two of the hardest hit by the virus it will be interesting to see if further help is needed later in the year for these two struggling economies and how that comes to fruition if at all.

With this in mind I would personally be cautious on euro exchange rates in the coming months but it is also key to remember that in times of adversity the euro does tend to outperform expectations so it certainly isn’t a given that the euro will weaken as the year progresses, but it is for sure something to look out for.

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