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Pound to Euro (GBP/EUR) Exchange Rate Rises as Italy’s Debt Crisis Worsens

May 18, 2020 - Written by John Cameron

GBP/EUR Exchange Rate Edges Higher as ECB Says Covid-19 is ‘Terrible’ for Eurozone’s Economy

The Pound to Euro (GBP/EUR) exchange rate rose by 0.4% today, with the pairing currently trading around €1.12.

The Euro (EUR) struggled today after the European Central Bank’s (ECB) chief economist, Philip Lane, told the Spanish newspaper El Pais that Covid-19 is having a ‘terrible’ impact on the Eurozone’s economy.

Mr Land commented:

‘The speed at which the economy bounces back will then hinge on whether consumers are more reluctant to consume and businesses hold back on investment. From today’s perspective, it looks in any case unlikely that economic activity will return to its pre-crisis level before 2021, if not later.’

As a result, the Euro has suffered from rising concerns for the Eurozone’s economy after last week saw the German economy officially enter a technical recession.

Meanwhile, Italy has continued to struggle from massive public debt due to the coronavirus crisis. This has caused considerable concerns for cohesion within the Eurozone and has contributed to today’s drag on the single currency.

Analysts at Reuters explain:

‘Italy’s public debt has long been seen as a fault-line for the survival of the euro zone, and analysts say the pandemic is raising fresh questions about the sustainability of Rome’s borrowings.’

Pound (GBP) Rises as UK Makes Progress to Tackle Covid-19

The Pound (GBP) rose against the Euro (EUR) after Health Secretary Matt Hancock revealed that 21,000 people had been hired to carry out coronavirus contract tracing. He also revealed that anyone over five with symptoms of the virus were now eligible for the Covid-19 test.

As a result, Sterling has benefited from signs that the UK could be making progress towards containing and controlling the spread of the coronavirus.
Mr Hancock said in his speech before the House of Commons:

‘Yesterday we conducted 100,678 tests. Every day we are creating more capacity and that means more people can be tested, and the virus has fewer places to hide.’

However, some Pound traders are remaining cautious as several of the Bank of England’s (BoE) top officials have continued to discuss the possibility of below zero interest rates.

Andy Haldane, the BoE’s Chief Economist, told the Daily Telegraph:

‘The economy is weaker than a year ago and we are now at the effective lower bound, so in that sense it’s something we’ll need to look at – are looking at – with somewhat greater immediacy.’

GBP/EUR Forecast: Could 1980s-Style UK Unemployment Figures Weaken Sterling?

Euro (EUR) investors will be looking ahead to tomorrow’s release of Germany’s ZEW survey for May’s economic sentiment. However, with this expected to remain low it is unlikely that it will provide much uplift for the single currency.

Furthermore, if the Eurozone’s largest economy continues to struggle, then we could see the EUR/GBP exchange rate sink deeper.

Pound (GBP) traders will be awaiting tomorrow’s release of the UK’s ILO Unemployment Rate report for March. However, with fears that the UK’s unemployment could reflect the 1980’s joblessness crisis, we could also see Sterling suffer.

The GBP/EUR exchange rate will continue to be dictated by Covid-19 developments this week. If the UK shows increasing evidence that it has its coronavirus situation under control, the we could see Sterling rise higher.

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