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GBP to EUR Exchange Rate Rebounds as Markets Show Signs of Stability

March 25, 2020 - Written by Ben Hughes

The market is experiencing a rebound in demand for riskier assets this week, and this is helping the British Pound to Euro (GBP/EUR) exchange rate to recover a little more solidly from its recent lows. However, signs of improving fiscal action in the Eurozone is keeping the Euro fairly appealing, and overall the Pound’s appeal remains limited. The latest movements in markets are largely due to impressive stimulus news from the US.

After opening this week at the level of 1.0841, GBP/EUR briefly dipped lower. Since then though it has seen a rebound and is climbing away from the lows seen at the end of last week.

Last week’s GBP/EUR low of 1.1460 was the worst level for the pair in over a decade.

At the time of writing on Wednesday, GBP/EUR is trending in the region of 1.0977. GBP/EUR has slipped slightly from the day’s highs as the Pound lacks the drive to advance much higher.

GBP Exchange Rates Struggling to Sustain Best Levels as Coronavirus Jitters Persist

The Pound has been advancing today, as investors continue to buy the British currency back from its cheapest levels.

Investors are buying the Pound amid the latest market risk-sentiment. Market sentiment calmed slightly and investors became more willing to take risks again after the US introduced major stimulus to help tackle the coronavirus.

According to Neil Jones, Head of European Hedge-Fund Sales at Mizuho:

‘Sterling is a benefiting part of Dollar weakness,

We’ve got some stability with China returning to normality, (so) maybe there is a light at the end of the tunnel,’

However, while Sterling is benefitting from the market’s current mood, its potential for gains has been limited.

The Pound’s outlook remains dampened by the coronavirus pandemic, which is worsening in Britain and forcing the nation into lockdown.

On top of this, the UK government’s fiscal stimulus measures have still not been enough to keep investors more optimistic about UK economic resilience amid the outbreak.

Investors are still eagerly awaiting more fiscal stimulus from UK Chancellor Rishi Sunak. As other major economies continue to ramp up stimulus, the Pound is simply lacking in the support needed to help it to sustain and extend its recovery.

EUR Exchange Rates Remain Resilient amid EU Fiscal Policy Hopes

The Euro has seen weeks of strength. The shared currency has been benefitting from some of the market’s safe haven demand, due partially to some periods of weakness in the Euro’s rival the US Dollar.

However, safe haven demand has taken a hit this week. Investors have been more willing to buy riskier currencies again amid a brief period of market calm. This was caused by the latest US monetary and fiscal stimulus plans.

The Federal Reserve and US Congress both introduced massive stimulus measures.

However, while slightly weaker safe haven demand kept pressure on the Euro, the shared currency’s losses have been limited by other factors.

The Euro often strengthens when its rival the US Dollar is weak. Today’s US Dollar losses have slightly helped the Euro.

On top of this, ramped up EU fiscal policies as well as hopes for more fiscal stimulus are boosting the shared currency’s appeal.

Nine Eurozone nations called for a joint Eurozone debt to help finance coronavirus stimulus and protect economies. This included France, Italy and Spain. According to a letter to the European Council:

‘We are collectively accountable for an effective and united European response,

This common debt instrument should have sufficient size and long maturity to be fully efficient and avoid roll-over risks now as in the future,

The funds collected will be targeted to finance in all Member States the necessary investments in the healthcare system.’

GBP/EUR Exchange Rate Forecast: Safe Haven Demand Likely to Return

The Pound to Euro exchange rate’s potential for gains has been limited. There is still little current support for Pound strength, and the Euro remains fairly appealing as a safe haven, especially in times of US Dollar (USD) weakness.

The Pound could see stronger demand going forward if Britain ramps up its own fiscal stimulus plans.

Investors are still highly anticipating more fiscal stimulus from UK Chancellor Rishi Sunak. Sunak is expected to soon ramp up support for Britain’s self-employed workers.

If the stimulus impresses markets it could boost the Pound’s support.

However, if Sterling remains unappealing, GBP/EUR could resume its tumble. The Euro will likely remain appealing as a safe haven alternative to the US Dollar, and will be even more appealing if EU nations ramp up fiscal stimulus.

Overall, the Pound to Euro exchange rate’s potential to advance is limited.
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