In another week dominated by coronavirus headlines, the pound sterling took a tumble against the euro in the early week. The single currency continued to benefit from the demand of euros as global stock markets crashed amid the fallout from the COVID-19 panic across the globe. The euro also benefitted against GBP as the market noted a seemingly lack of action from the UK government as the UK had released little stimulus plans to help the economy in the first half of the week, with a muted response from the Bank of England. The European Central Bank (ECB) released their ‘mammoth’ stimulus package which aimed to offset the damage from the coronavirus to the Eurozone economy, but investors didn’t receive the stimulus well, noting that it could take the Eurozone into a recession. Meanwhile, the pound looked to mount a comeback on the euro towards the end of the trading week, with the BoE cutting rates, boosting their Quantitative Easing (QE) programmes and announcing more stimulus to help the UK economy and its citizens.
EUR Continued to Benefit From Stock Market Collapse, Driving EUR Demand
For the euro, the demand for the single currency continued into the start of the week as the coronavirus showed little signs of releasing its stranglehold on the global stock markets. With the stock markets collapsing, investors repatriated their stock capital back into euros. The process of carry-trades has been favourable with investors due to the ECB’s negative interest rates which allowed investors to borrow euros to fund their investments – usually for high-yielding investments.
ECB Announced PEPP QE Programme to Boost Eurozone Economy, but Investors Were Not Convinced
Into the midweek, The European Central Bank’s policymakers announced that they planned to launch a Pandemic Emergency Purchase Programme (PEPP) of quantitative easing that will see Christine Lagarde’s Governing Council buy an additional €750 billion in European government and corporate bonds before year-end. Purchases will be conducted at least until the end of 2020 under the new program, which can buy a broader array of instruments than the existing facility including bonds of the Greek government as well as non-financial corporations. As a result of the move, the euro dropped against the pound and most other rivals following the QE program announcement. The decision for QE came after a mass departure from continental financial markets that put simultaneous pressure on risk assets like stocks as well as traditional safe-haven assets like government bonds.
Bank of England Drags GBP up From the Depths to Perform Positively
The pound Sterling appreciated by 3% on Thursday as the Bank of England announced a further emergency interest rate cut which saw the rate drop from 0.25% to 0.1%. Alongside this move the BoE also highlighted that it had increased its government and corporate bond holdings by £200BN in a unanimous decision aimed at fending off the detrimental impact of the COVID-19 pandemic. Thursday also saw an announcement from UK PM Boris Johnson, in which he indicated the UK government may reveal more plans for the protection of jobs and wages – something which is set to boost GBP if true.
Looking ahead, the coronavirus is set to remain the top priority for world news in the week ahead. The UK will be looking to build on its strong end to the week and carry this through to the start of the new week. Meanwhile, the Eurozone will likely have its work cut out to appease investors concerning its stimulus efforts following the drop in EUR towards the end of the week. Any developments in the coronavirus crisis will steal the limelight in the week ahead.
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