The pound has strengthened against the euro today and the GBPEUR interbank exchange rate has reached a high of 1.1525. The Eurozone area has seen a series of weaker economic data today. This morning French consumer spending, month on month for March came in significantly lower at -17.9% versus a forecast -5.5%. Spain’s gross domestic product for the first quarter of 2020, came in lower at -5.2% against a forecast -4.4%. Germany saw a big increase in unemployment from a forecast 76,000 to 373,000.
Eurozone consumer price index, year on year came in better than expected at 0.4% against a forecast 0.1%, and the Eurozone unemployment rate for March also came in better than expected at 7.4% against a forecast 7.7%. However, this was offset by worse than expected gross domestic product for the Eurozone coming in at -3.8% against a forecast -3.2%.
Eurozone economy could shrink as much as 12%, Causing Euro Weakness
The European Central Bank unsurprising left interest rates at 0%. Following the European press conference, the European Central Bank reduced the cost of their emergency loan program for banks and unveiled a further facility to inject liquidity and encouraged politician to provide further fiscal support. President of the ECB, Christine Lagarde said the Eurozone economy could shrink as much as 12% this year.
The pandemic purchase program was kept at €750 billion, which together with earlier programs, means it will buy more than €1 trillion of debt through the end of this year. The ECB is prepared to increase or extend this if required.
Countries within the EU will be looking towards the European Central Bank on whether aid should take the form of grants or loans. Germany and the Netherlands have opposed joint debt over concerns they will pay for most of it. This will unnerve investors, as countries that already in debt could spiral out of control.
Brexit Negotiations Back in the Picture
The Foreign Secretary, Dominic Raab yesterday reiterated again that Brexit trade negotiations will continue but preparations will continue for a no deal Brexit at the end of this year if there is not enough progress towards reaching an agreement with the European Union. Any uncertainty on this part could see the pound weaken as the market refocuses on the threat of a no deal Brexit.
The latest number of Coronavirus deaths in the UK has exceeded 26,000 people, with statistics now including deaths in care homes. Dominic Raab last night said that the lockdown will not be eased until they know that a ‘second peak’ can be avoided. This would prevent more people losing their lives and further damage to the economy.
If Eurozone data sets continue to be weaker, and UK announces soon an easing in lockdown, this could push the GBPEUR forecast higher.
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