Sterling continues to experience significant daily swings in value – yesterday’s trading session against the euro saw interbank levels swing between 1.0779 – 1.1048, a swing of almost 2.5% from high to low. Having benefited in the morning from a spark of investor confidence (on the back of news from the States of a significant aid package being rolled out to prop up the economy), the pound had once again declined by the end of trading.
Sterling struggles to maintain attraction to investors as the grip of Coronavirus takes hold and despite a virtual lockdown in place images of packed commuter trains continue to circulate. Domestic unrest about the imagery, concerns about the 5 million unemployed workers so far ignored by the government, and criticism of a soft approach to the spread of COVID-19 make for uncomfortable reading. Not to mention that the UK still has a significant challenge ahead in negotiations with Europe regarding trade by 31st December this year. Rightly, this is in reserve while the globe battles more pressing issues but the longer this pandemic continues, the more pressure will be on the UK to avoid starting 2021 with a ‘no deal’ scenario.
All eyes on the Bank of England today
The Monetary Policy committee meet today as scheduled to decide upon UK interest rates. Consensus is that there will be no change to the headline rate following on from an emergency base rate cut of half a percentage point on 11th March to 0.25%, followed by another one eight days later which took the bank rate to its lowest ever level of 0.1 per cent.
As well as the base rate cut, the Bank of England announced a funding scheme for small/medium business which could provide as much as £100billion in four-year funding ‘at interest rates at, or very close to, bank rate’ for the banks to lend. This will enable the aid to filter through the economy to the areas most needed in an attempt to keep ‘UK plc’ moving.
Commentary from the Bank in their following press conference will be a key highlight through today’s trading and has the potential to influence the value of the Pound.
European Leaders to continue discussions on the best way to support the economy
The European Union leaders will continue discussing the best way to implement their bailout fund via video conference today. Titled the ‘European Stability Mechanism’ the funds stand at a figure of around €410billion but there is a lack of agreement on how this would best be utilised to support the Bloc’s economy which has been bought to a standstill in the wake of the coronavirus pandemic.
Despite the EU’s slow response to the current pandemic the Euro remains the favoured currency. With already low interest rates the capital inflow in to Europe before and during the initial spread of Coronavirus still continues as investors are able to borrow money cheaply. You could also argue that the European economy will be able to spring in to action once the current health crisis is over as a large industrial sector will once again begin to churn.
Still trading within a range of 1.07-1.10 against sterling, the euro has increased in value by 8%+ in the last month, and represents a good opportunity for any euro seller.
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