The euro to US dollar exchange rate has slipped below the key 1.09 level to reach its lowest rate since 2017 at 1.0865. Further losses could be in store as foreign exchange markets look to be in the process of pricing in fresh action at the European Central Bank (ECB). The market is suggesting that the ECB could be well on its way to cutting interest rates once more in 2020, a move which will likely lead to further weakness for the single currency. The euro has been on a downward spiral of late with poor economic results dampening the mood around the currency, as well as the unknown economic impact that the coronavirus is set to cause.
ECB Could Be Lining up for an Interest Rate Cut in 2020
Analysts at Swiss bank Credit Suisse noted that they are expecting a 10 basis point interest rate cut at the ECB in the second quarter of 2020. They state that this will come as the soft recovery in the Eurozone economy takes a hit from the coronavirus. Speaking for the Swiss bank, Neville Hill, Managing Director and Chief Economist Europe for the Investment Strategy and Research department stated that both direct and indirect effects will likely lead to a material fall in manufacturing surveys, such as the PMIs in the months ahead. He expects a drop of around 4-5 points. He further stated that this will be particularly true for Germany, which is exposed to both factors.
Coronavirus Could Kick the Eurozone While It Is Down
The coronavirus outbreak has impacted the global economy in many ways, especially shutting-down Chinese economic activity, which may take months to recover from. The outbreak started in late-2019, just as investors were readying up for a pick-up in global activity following the announcement of the ‘phase one’ trade deal between the US and China. With the outbreak originating in China, it has been the most impacted country, but other countries around the world have also felt the fallout effect with risk-sensitive currencies balancing on a scale of volatility and Automakers in Japan, South Korea and Europe have already announced shortages of components which could lead to suspended production. The German industrial production sector fell 3.5% in December which reversed the previous 1.2% increase for November, this disappointed markets which had forecast a 0.2% gain.
Considering the recent poor performance in economic data releases combined with the economic slowdown caused as a secondary factor from the coronavirus, the market is expecting some form of QE from the ECB in order to combat the damage that has been caused by the two.
The week ahead could be key for sterling with two key news and economic events at the end of the week. If you have an upcoming currency transfer you may wish too get in touch to discuss the news and the markets further using the form below. I look forward to hearing from you.