Euro to Pound (EUR/GBP) Exchange Rate Sinks as European Covid-19 Concerns Weaken Single Currency

October 8, 2020 - Written by John Cameron

STORY LINK Euro to Pound (EUR/GBP) Exchange Rate Sinks as European Covid-19 Concerns Weaken Single Currency

EUR/GBP Exchange Rate Falls as Uncertainty Surrounds Eurozone Economy

The Euro to Pound (EUR/GBP) exchange rate fell by -0.2% today, with the pairing currently trading around £0.908.

The Euro (EUR) failed to rise against the Pound (GBP) today despite German exports rising for their fourth consecutive month.

As a result, this has boosted hopes for a strong third quarter for the Eurozone’s largest economy.

Thomas Gitzel, an economist at VP Bank, commented:

‘The export economy has been reaping the low-hanging fruits in recent months. The worst is behind us, but this does not mean that the German economy is immune to short-term setbacks.’

Meanwhile, the European Central Bank’s (EBC) Governor Council was downbeat about the Eurozone’s economic prospects, saying:

‘Uncertainty about the evolution of the ongoing COVID-19 pandemic and the potential materialisation of adverse real-financial feedback loops called for vigilance.’

‘Pandemic, Brexit, US election, fiscal plans need to be monitored.’

The Euro (EUR) will likely remain subdued today as risk-sentiment recovers.

This follows US President Donald Trump showing promising signs of giving the thumbs-up to certain elements of the American Covid-19 stimulus package.

Pound (GBP) Rises Despite Dovish Bank of England

The Pound (GBP) edged today despite dovish comments from the Bank of England’s (BoE) Governor Andrew Bailey. Mr Bailey highlighted that the risks to the UK’s economic recovery were skewered to the downside.

The BoE’s Governor said:

‘There is an unprecedented level of uncertainty at the moment. And the risks, I’m afraid – certainly as we see them – are very much on the downside.’

Meanwhile, Brexit headlines have pointed to progress in UK-EU negotiations.

Nevertheless, the EU has recently hardened on issues such as fishing rights, leaving GBP investors increasingly doubtful whether Downing Street will compromise on a post-Brexit trade deal.

Italy’s Prime Minister, Giuseppe Conte, was more hopeful over a deal, however, saying:

‘I believe there will be an agreement in the end … and trust that the British government will be willing to reach one that ensures reciprocal advantages.’

However, Sterling has remained under pressure from rising Covid-19 cases throughout the UK.

As a result, GBP traders are becoming concerned that this could throw the British economy into crisis in the coming months.

EUR/GBP Forecast: Could a Brexit Trade Breakthrough Buoy Sterling?

Pound (GBP) investors will be awaiting tomorrow’s release of August’s final UK GDP figure. Any improvement in Britain’s economy could provide some uplift for Sterling.

Tomorrow will also see the latest UK Manufacturing and Industrial Production data for August. If these rise, then the outlook for the UK’s economic performance would improve, lifting GBP.

Euro (EUR) traders will be keeping a close eye on tomorrow’s release of August’s French Industrial Output figure. Any improvement in the Eurozone’s second-largest economy would prove EUR-positive.

The EUR/GBP exchange rate will continue to be driven by Brexit developments. If Downing Street shows any willingness to compromise and secure a post-Brexit trade deal with the EU, then we could see the Pound head higher.

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