Sterling rose more than 0.5% to a fresh three week high against the euro during yesterday’s trading despite UK coronavirus victims leaping to 25,000 and the death toll rising to almost 2,500, an increase of almost 30%. The UK remains on a steep trajectory despite the nationwide lockdown implemented more than one week ago. However, if the curve continues in this manner, sterling could come under selling pressure. The UK currency also seemed to bypass the fact that ratings agency Fitch had lowered its long-term ratings from AA to AA-.
However, analysts at Danske Bank feel this mood could be short-lived as factors go against the pound in the coming months, “Time spent fighting the coronavirus by both the UK and the EU means less time to negotiate a deal before the end of the year, increasing the risk of a big trade shock by 1 January 2021. We forecast EUR/GBP at 0.93 (GBPEUR 1.0752) in 1-3 months.” Analysts also said, “We will probably see some of the current risk premium reverse and we expect the cross at 0.90 in 6 months.”
Another large European bank, Rabobank shares a similar view “The monthly chart implies that the bias is skewed in favour of a break higher towards the all-time high at 0.98029 (GBPEUR 1.0201) as EURGBP has been trading over the past few months above the pivot around 0.83.”
European Economy Support Packages
Meanwhile, countries in the eurozone are desperately trying to formulate a rescue package to help support the economy against the coronavirus pandemic. Officials have until April 9th to bring together all nations, those that are screaming out for mutual debt issuance and those that are absolutely against the idea. At the last meeting, EU leaders failed to agree and instead gave themselves a further two weeks to come to an agreement. It is hoped that a compromise could be reached by early next week although with such polarised views between those that support the move (France, Italy, Spain, amongst others) and those that fiercely reject the idea (Germany, the Netherlands, Finland and Austria), a compromise will be far from easy.
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