EUR to GBP: Emergency Funding for Covid-19

EU Deal Doesn’t Help Euro v Pound Make Back Losses

The eur to gbp rate has made gains of late as it seems EU members maybe coming close to agreeing on emergency funding to combat the economic problems created by the Coronavirus. Italy and Germany seem to be at the forefront of talks and an agreement could be on the cards sooner rather than later.

Italy were previously very bitter about how the funding was due to be allocated around the bloc. Poland for example was due to receive a larger portion of the funding than Italy despite Italy being hit harder by the pandemic.

Germany have been reluctant to take on any further collective debt being the engine room of the EU. Berlin even have gone as far as to take one debt matter to court, Germany feeling some of the Quantitative Easing (QE) that has been administered to Europe was don e so unlawfully. QE is essentially pumping money into an economy in order to boost growth. It is a controversial monetary policy and has varied results.

So, the news that there may be an agreement on emergency funding is certainly positive news considering the current situation.

Euro Could Benefit as Investors Leave US Dollar

The euro could benefit significantly from investors moving away from safe haven of the US dollar. Current US debt is now above $26.5 trillion, but despite this the US is still considered a safe haven currency due to the profitability that is created by its huge appetite for imports. I have included a link for the US debt clock should you have any interest.

The US dollar’s safe haven status is now under threat however as COVID-19 runs riot through the land of the free. It is now believed that 1 in 100 Americans have contracted the virus. Many states are now reintroducing lock down measures in an effort to combat the virus. Miami, is now considered the epicentre of the pandemic.

This will no doubt have a serious impact on the US economy. There has been thousands of job losses and there will be no doubt further losses. US precautionary measures are simply not fit for purpose or the rules are simply being ignored. Some economists are predicting a substantial fall in US dollar value as investors lose faith in the green back and the Euro could be the benefactor.

Brexit

It seems there could be the potential for a deal by the end of Autumn according to reports. There have been rumours circulating that Brussels could be willing to make concessions on one of the key point of contention in negotiations, fisheries.

Boris Johnson has stated he wants a deal done by the end of July, this does seem rather optimistic however considering what we have experienced in previous talks.

Brussels has signaled that it is prepared to back down from its previous demands to keep the same access to British fishing waters it has at present and for the European Court of Justice (ECJ) to have a role in policing any deal.

Negotiators are currently trying to find a method where the UK can distance itself from current ECJ jurisdiction.

The EU is hoping for Britain will be willing to accept that the entire agreement must have a single dispute resolution structure. This is something the British side has so far rejected, as it would give the bloc leverage to retaliate in different areas if Britain broke the terms of any part of the agreement.

If a deal is agreed we could see substantial Sterling strength against the euro. It is important to remember however that these negotiations have been very problematic from the get go with many false dawns. With Boris ruling out any further extensions a no deal scenario is still a possibility.

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