Pound to Euro Forecast: How Has GBP Turned the Tables on EUR at the End of the Week?

GBP EUR Gains on Goldman Sachs Rate Outlook

Towards the end of the trading week, the UK government and Bank of England (BoE) mounted a comeback against the euro. In a series of events, the Bank of England (BoE) slashed interest rates from 0.25% to 0.1%, introduced further quantitative easing methods and pledged to provide more stimulus packages for the UK economy in an attempt to offset the damage caused by the COVID-19 outbreak. The moves were welcomed by GBP traders as the euro has had the edge over GBP in recent weeks, mainly owing to an increased demand from investor inflows as stock markets collapse. Many EUR traders had borrowed euros in ‘carry-trades’ which allowed them to borrow the single currency to fund higher-yielding investments, but now with stocks taking a tumble, many investors repatriated their stock capital back into euros as they flocked to safety amid the pressures of the virus.

Euro Demand Back-Pedalled as ECB Stimulus Failed to Impress, With Recession Looking Likely

For the euro, the single currency had experienced an increase in demand due to the carry trades which were being repatriated by EUR traders following the collapse of the stock market. Many traders had previously borrowed euros thanks to the ECB’s negative interest rates which allowed traders to borrow the single currency in order to fund higher-yielding investments. However, with the mounting efforts by central banks across the world, the market risk sentiment has begun to ever-so-slowly return.

Added to this, the ‘mammoth’ stimulus package announced by the ECB earlier in the week did little to help the single currency. Despite the 750-billion-euro pledge to boost the economy, investors noted that the Eurozone had wrong-footed its move into tackling the coronavirus and has now almost certainly ensured that a recession will occur in the near-term.

UK Mounted a Full Comeback Against Euro, With More Stimulus to Be Announced

In a shock turn of events, the pound mounted a comeback against the euro towards the end of the week. The Bank of England announced a shock interest rate cut – taking the number of cuts this month to two. The cut saw the rate fall from 0.25% to 0.10% in a move justified by BoE officials as necessary in order to combat the impact and disruption from the coronavirus. Furthermore, the bank announced a boost to their quantitative easing program to bolster the UK’s defences against the economic interruption.

Finally, UK PM Boris Johnson dropped hints for further stimulus efforts from the UK up ahead on Thursday. He noted that the UK can expect to see more details of how the government plans to protect workers jobs and wages amid the crisis. The boost of optimism from the UK’s lifted response to the pandemic has helped GBP gain on its single currency rival towards the end of the week and places the British currency in good stead to start the new trading week on Monday.

If you’d like to discuss these factors and how they could impact an upcoming currency exchange, you can get in touch with me, Brett Goulty, to ask a question using the form below.