It’s looking like it could be quite a challenging time for the markets this week, as the persistent rumours surrounding the potential for a second wave of the Coronavirus aren’t going away. Towards the end of last week we saw the euro v pound exchange rate continue to climb, as Sterling exchange rates continued to come under pressure for a number of reasons with the potential for the 2nd outbreak of the virus perhaps the most important.
The weakening of the pound has helped the euro break below the key threshold of 1.1000. This happened on Friday and this morning markets have opened in the same position with the GBP/EUR rate trading at 1.0980 at the time of writing, which is an inverse rate of just over 0.91. Those of our readers following the euro v pound rate will be aware that this market movement now puts the EURGBP close to its annual high, as it’s only 3-cents from the best trade levels available of the past 52 weeks which is also a decade high.
Although the euro has remained quite resilient, and seen some improvements as the EU economies opened up after the strictest measures during lockdown, much of the market movement for the euro to pound rate at the moment is being derived from the pound.
Sterling weakness earlier this year
Earlier this year, when the seriousness of the COVID-19 virus first surfaced we saw a dramatic sell-off for the pound. The drop in the pound’s value didn’t go unnoticed either as when the pound fell to its lowest level against the US dollar in 35-years it hit the headlines, along with the sell-off of global stock markets much to the dismay of US President Donald Trump who has relied on the strong performance of the stock markets to demonstrate what he considered to be strong leadership.
Recent patterns suggest that the pound is likely to be sold off during times of stock market selloffs and panic. Attitudes towards the pound have changed, and just last week a member of the Bank of America’s FX department commented that the pound has reflected more of a developing market currency than a developed one.
Now that the talk of a second wave from the Coronavirus is picking up steam, it may be the reason for the pound dropping off and falling below 1.10 against the euro, as the markets gear up for maybe another ‘risk off’ time in the market.
The lack of progress regarding Brexit negotiations hasn’t helped the pound’s cause either. June was the final month for the UK government to request a Brexit extension and we now know that there will be no request from the UK for one. This leads me to believe that the outcome of trade talks between the UK and EU negotiators will now once again be a key talking point for the pound, and could influence Sterling exchange rates as we saw for the few years following the vote in 2016.
BoE Governer Bailey to Speak Today
Later today, BoE Governor Bailey will speak at the launch of the Climate Financial Risk Forum. The focus will be on how financial firms can understand and approach new opportunities during the current COVID-19 impacted climate, so he’s expected to steer clear of talk regarding financial stimulus.
Inflation data within the EU will also be released tomorrow morning and as inflation levels have been stubborn with the trading bloc for some time now, the figures tend to be watched closely so I think that could be a key time for the euro this week.
UK Gross Domestic Product data will also be released tomorrow morning so we could see a busy Tuesday morning, and if you wish to plan around any of the data releases covered in this market update do feel free to register your interest with me.
The UK’s issues with the COVID-19 virus are far from over with reports over the weekend suggesting that Leicester may need to go into lockdown specifically due to a spike in the number of cases there, so this is also worth monitoring throughout the week.
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