The pound to euro exchange rate rose overnight following the announcement from the European Central Bank (ECB) that it plans to announce a mammoth quantitative easing program in order to combat the negative impact of the coronavirus outbreak within Europe. The euro found itself under intense pressure on Thursday following the overnight announcement which saw the launch of the Pandemic Emergency Purchase Programme (PEPP). The plan will see Christine Lagarde’s governing council spend an additional €750 billion in European government and corporate bonds before the year ends. The news, of course with any currency easing methods, sent the euro dwindling. This gave GBP investors a chance to ponder the possibility of an edge over the weaker euro after weeks of the single currency dominating markets.
ECB Announces Emergency QE Program to Offset Coronavirus Damage
The European Central Bank’s policymakers announced last night that they plan to launch a Pandemic Emergency Purchase Program (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.
The central bank noted that “The Governing Council of the ECB is committed to playing its role in supporting all citizens of the euro area through this extremely challenging time. To that end, the ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks and governments”.
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.
Outlook for Euro Expected to Be Downhill
Markets continued their meltdown even after governments announced emergency plans to combat the COVID-19 outbreak which has crippled three of Europe’s major economies into a ‘lockdown’ in which citizens are confined to homes and the operations of companies have been severely disrupted. The Euro has suffered and dropped lower since topping out near 1.15 last Monday. This has been perceived as a significant turn in the market because it coincided with investor positioning in the futures market swinging from a large net ‘short’ to an almost neutral position following days of extreme volatility. As a result of this, it has meant losses for stocks, commodities and emerging market currencies. Europe’s economy already dropped lower before the virus ever appeared in China’s Wuhan and since then three of the Eurozone’s four largest economies have gone into lockdown, causing havoc for the Eurozone’s economic output.
GBP investors will be paying close attention to the unfolding of the Eurozone crisis as it may present traders with an opportunity to witness a higher GBP/EUR exchange rate. The fallout from the coronavirus is set to continue and any developments will likely swing the single currency up ahead.
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