The euro has experienced a mixed bag of reactions to some of its major currency counterparts this week as the euro to pound exchange rate climbed a cent since last week to the current 0.922. This would put the pairing just half a cent off a 6-month high not seen since 24th March. In stark contrast, the euro to US dollar mid-market exchange rate has slipped to a 5-week low of 1.172 at time of writing. This is surprising considering that for the last 4 months the pair had mainly traded within a cent between 1.18 and 1.19 but is now starting to see some larger movements.
The volatility starting to arise could be attributed to an accelerated increase in COVID-19 cases. France has been struggling more than most at present as last Saturday saw its recorded daily cases blown out of the water to 13.5k new administrations. Many other countries, including the UK, are now starting to see a “second wave” occurring as we edge closer to the winter months which have been predicted to be very difficult and the occurrence of hospitals and equipment being overrun seeming likely.
France Sees Number of Record Coronavirus Cases Over the Weekend
With the UK having already announced the possibility of a 2-week national lockdown referred to as a “circuit breaker”, it may not be surprising that some of the more virus-hit nations of the 27 EU member states could follow suit. This would, of course, have severe implications for their respective country’s GDP which is troubling considering that many businesses and economies were just starting to recover. This newfound uncertainty could be the start of further, more exaggerated volatility within the currency markets but is a as yet still very unclear as to which way they will move.
The upcoming US elections could be something that may assist the euro when it comes to trying to regain the lost inroads the EUR/USD rate has witnessed recently. From the looks of the more recent polls, frontrunner Joe Biden appears to be marginally ahead of current President Donald Trump but as the campaign trails pick up and we move closer to the deadline, the implications of a potential newcomer to office could generate some weakness for the USD.
Markit Manufacturing and Retail Sales Look to Bring Gains for the Euro
The euro could see some support from its upcoming market data releases too as tomorrow will bring the German and Eurozone markit manufacturing data showing relatively unchanged but positive outcome of 52. With any release above 50 considering bullish and positive, this could provide some growth for the single currency.
Thursday and Friday will see the EU leaders’ summit to discuss the Greek debt crisis. Greece, a country which was already struggling before the pandemic hit, is now finding itself at the epicentre of the economic difficulties within the EU and the €750bn recovery package may have a significant proportion of this fund being allocated towards bailing out its debt. As this is later revealed, it could bring about the tensions felt within the bloc as the financial divide between the north and south becomes more apparent with some of the wealthier northern member states having to provide grants to the poorer countries without feeling as many benefits being reciprocated.
Events should end on a more positive note next week as the retail sales figures which arrive on Wednesday are expected to bounce back 0.8% from the previous month to 4.2%. This will be welcomed news to the group as retail sales have been down repeatedly over the pandemic period and this would provide, if correctly predicted, the largest rebound for the Eurozone this year.
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