GBPEUR Rate: Gloomy Economic Forecasts Prevent the Pound From Racing Higher Against the Euro

GBPEUR Exchange Rate Forecast: Pound-Euro Rates Remain at Higher Ranges but for How Long?

Having hit 1.15 for the first time in over a month, the pound opens this morning still struggling to push through this level and is trading back again in the mid 1.14’s.

Latest data from the OBR (the Office for Budget Responsibility) reference scenario released yesterday afternoon predict up to 35% falls in economic output and a 10% increase in unemployment for the UK if the current lockdown lasts through March to June 2020, an economic crunch outweighing that experienced during the financial crisis in 2008/2009. Seeing a return to relative normality in the economy for the second half of the year the OBR reference a 12.8% fall in GDP for the UK for 2020, painting a difficult road ahead for the pound.

The UK however, is not alone in facing this global pandemic and although the stats released by the OBR are startling the bigger picture is for this decline in growth to be mirrored on a global scale. The International Monetary Fund reported the global economy could contract by up to 3% for 2020 which would be the biggest downturn since the 1930’s reporting, ‘It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.”.

Eurozone Still Divided on Sharing Debt

The Eurozone however, face a deeper crisis as cases of coronavirus globally have now hit the 2 million mark and a significant pool of these being reported from both Italy and Spain. Both countries have made the decision to ease lockdown for construction and manufacturing workers and some shops to prevent unprecedented economic stagnation.

Still failing to convince the markets that their €500billion economic recovery fund is the ‘real deal’ the euro remains pressured and this is linked to the pound moving to 5-week highs versus the single currency.

The distinct lack of agreement on issuing common debt, so called ‘coronabonds’ is causing much concern amongst investors that the Eurozone will be able to weather this storm.

Coronabonds are joint debt issued to member states of the EU, this would be mutualised debt taken on collectively by the EU. Nine EU countries have been calling for this common debt to be issued, including both Italy and Spain, but richer countries in the North of the bloc such as Germany and the Netherlands continue to oppose such measures. This political divide puts ongoing pressure on some of the most heavily debt-ridden countries in Europe and could prevent the EU from a solid economic rebound to the current global pandemic.

GBP remains poised to take advantage of this failure to act and therefore breaking the resistance of 1.15 could be only a matter of time if the EU continues to delay.

For more information on factors influencing GBPEUR exchange rates for an upcoming currency transfer, feel free to contact myself, Lauren Buckner, using the form below.