The pound has entered the mid-week vulnerable after enduring a further volatile 24 hours and based on the overwhelming mood in global financial markets, with GBP on course to test lows that many had feared only a ‘hard’ Brexit would have delivered. Meanwhile, for the euro, it took a turn for the worst on Tuesday as the latest ZEW surveys for Germany came in well below expectations. The outlook for both EUR and GBP looks to be set by the direction which each party deals with the onslaught from the coronavirus, with efforts from both the UK and the EU expected to be ramped up this week.
Sterling Losses Mount
The Sterling recovered some losses late on Tuesday in the wake of a press conference in Number 10 Downing Street in which the Prime Minister and Chancellor of the Exchequer unveiled a set of measures to boost the UK economy. Rishi Sunak announced that the UK Treasury has arranged £330 billion worth of guaranteed loans to be made available to UK businesses in order to cope with the coronavirus crisis, which is equivalent of 15% of UK GDP and ensures one of the largest fiscal responses to the coronavirus outbreak by any country to date. This announcement has done little to help GBP bounce back from recent lows with the GBP/EUR exchange rate sinking further to around 1.0881 on the interbank exchange, down over 4% during the course of the past week.
Today’s Sterling performance has also followed the dismal trend against the euro. The fears surrounding the coronavirus remain heightened which has put further pressure on GBP. The UK PM Boris Johnson has answered questions in a press conference today which did little to reassure the UK public as many are questioning his decision to keep schools and businesses open despite warning to avoid meeting places like bars and pubs. Meanwhile, the eurozone has hinted at providing further support for the bloc’s economy which has boosted EUR further. EUR/GBP rate is prolonging the March rally on Wednesday, pushing for the eighth session in a row and breaking above the key barrier at 0.92 the figure to record new highs in levels last traded in August 2019.
Poor Eurozone Zew Survey Data as EU Closes Borders to Contain Coronavirus
Meanwhile for the euro, in an escalation of the measures to slow the spread of the virus, Tuesday saw the European Union announce that it would be closing its borders for a month. Added to this, EU leaders agreed to set up fast-track lanes at countries’ internal frontiers to keep goods flowing across the continent.
Tuesday also saw the release of the German ZEW survey which sparked fears that a recession in Europe is up ahead, with early surveys providing supporting evidence. Germany’s economic sentiment index came in at –49.5 this month, plummeting from 8.7 and falling well below expectations of a more modest drop to –26.4 as fears over the coronavirus weighed heavily on the outlook. To put the disappointing result into context, this is the largest fall ever recorded by the ZEW Institute, since they began their survey back in 1991.
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