Euro to Pound: Inner Fighting Over COVID Funding Could Weaken EUR

Euro to Pound: Inner Fighting Over COVID Funding Could Weaken EUR

One of the key points for euro instability at present is the problems surrounding emergency funding to be shared throughout the bloc to combat the economic impact of COVID-19. This is likely to be the main driver, as well as Brexit developments, for the euro to pound rate in the coming weeks.

There has been a great deal of in-fighting between member countries, both in terms of the amount of funds to be distributed as a whole and how much is to be allocated to each country. Italy, are not best pleased, who have seen Poland with a much lower Coronavirus infection rate be granted a larger sum of the emergency fund.

Italy could be the first candidate to follow the UK and call a referendum to leave, something Brussels will be desperate to avoid to negate any domino effect from occurring in regards to other EU members leaving the bloc.

Markets will continue to monitor developments surrounding the proposed EU recovery fund with French President Macron scheduled to meet Dutch Prime Minister Rutte today.

Bundesbank have announce they believe there will be a contraction of nearly 10% to the German economy in the second quarter due to the impact of the pandemic which is not good news considering Germany is the engine room of the Eurozone.

Nomura have recently stated that they feel Sterling is over valued against the euro. They believe that Sterling should fall in value due to lower UK growth expectations, falling real yields vs peers and wide double deficits. They believe GBPEUR should be sitting at around 1.0870.

To counter Nomura’s prediction Credit Agricole believe that the euro is overvalued. Credit Agricole’s in house FX trading model has triggered a buy Sterling against the euro.

The model, which looks to make short term recommendations believes GBPEUR should be sat at around 1.1550.

This is all very well, personally I believe Sterling will remain fragile until we have some form of clarity surrounding Brexit. I think 1.15 will remain a firm resistance point on GBPEUR until there is firm progress in the key areas of contention in negotiations.

Fisheries and the Irish Border remain the stumbling blocks that are stopping a deal getting over the line. Teresa May had several years of talks and failed to make progress in these two areas. It seems Barnier has a mandate and he intends to stick to it.

Could it be the case that May was not such a weak negotiator and that Brussels were simply not prepared to play ball?

It is not in the interest of Brussels to give the UK a favourable deal, it could be that they are making Britain’s exit from the EU as difficult as possible to warn off any other EU members from following suit.

Boris is playing a risky game; he has now made it clear there will be no extension to Brexit talks past 2020. Although this may apply pressure on Brussels, if they are not willing to budge the UK will be heading out of the EU with no deal and this could have severe ramifications for the value of Sterling.

If you have a currency requirement I would be happy to discuss these factors in more detail, and how they could impact your upcoming currency exchange. to assist. If you let me know the details of your trade I will keep you informed with up to date market information to help you make an informed decision about when to trade. There are also a number of contract options available to you to help plan your currency exchange in advance and limit the risk associated with quickly changing currency markets.