The British pound was down against the euro on Wednesday afternoon following the announcement from Germany that it will look to suspend its debt break provision in the German constitution to allow higher deficit spending in order to combat the country’s economic slowdown. GBPEUR was lower by 0.44% at 1.1891 with a daily price range of 1.186 to 1.197 at mid-day yesterday. The currency pairing traded lower in the European trading session, after stalling at the 1.197 mark on a third attempt in the last week on Tuesday. As the coronavirus continues to rage on across the globe, EUR seems partially immune to the effects, despite a spike in cases in Italy, Austria and Croatia being reported.
Euro pops as debt relief plan is unveiled by Germany
Germany confirmed that it will temporarily loosen its fiscal purse strings in order to stimulate the German economy and buffer it from the downward effects of the COVID-19 virus which has moved across to Europe. German finance minister, Olaf Scholz has already highlighted the need for higher spending in a joint statement with other European finance leaders last week in an European Central Bank meeting. Recent statistics from Germany, including that of Wednesday’s forecast from the DIW Economics Institute that the German economy would only grow by 0.1% in the first quarter, may have sped up the process for the Eurozone’s largest economy.
Wednesday saw the Finance Ministry announce its plans to modify the debt break provision – set up by the German government to ensure they cannot spend more than their income – which would allow federal government obligations (a debt that’s backed by tax income) of heavily indebted municipalities. Germany’s constitution put strict regulations in place, with the Weimar republic firmly in mind, for the level of German government borrowing. The debt relief plan would allow those indebted municipalities to spend more on infrastructure and economy-growing projects after two consecutive quarter of no economic growth.
GBP down against EUR after USD shows weakness
The pound has been fairing better than most this week, but still managed to come in lower than the euro. This was mainly due to the weakness in the US dollar which usually favours the euro due to the higher average volume of trades with EUR over GBP. Meanwhile, the pound has seen little economic action to allow it to rally. The little data that was on display however disappointed the market with the British Rail consortium (BRC) Shop Price Index showing a fall of -0.6%, with a -0.3% drop expected.
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