November 3, 2020 - Written by Toni Johnson
STORY LINK GBP to EUR Exchange Rate Avoiding Losses as US Election Anxiety Leaves Euro Unappealing
Despite the Pound being hit by fresh UK coronavirus fears this week, the British Pound to Euro (GBP/EUR) exchange rate has been able to avoid losses this week so far. This is because resilient strength in the US Dollar (USD) ahead of today’s hotly anticipated US 2020 Presidential Election is keeping pressure on its rival the Euro, while the Pound remains fairly resilient on hopes for a Brexit deal to be agreed in the coming weeks.
Sterling has essentially been able to sustain advances against the Euro. Last week saw GBP/EUR make solid gains from the level of 1.0995 to close the week almost a cent higher at 1.1085.
While GBP/EUR has been able to return to last week’s month and a half highs of 1.1130, the pair is seeing fairly resilient movement this week so far. Rather than tumbling as other Pound pairings have done, GBP/EUR is trending within a relatively narrow region near the week’s opening levels. At the time of writing on Tuesday, GBP/EUR is trending near the level of 1.1100.
GBP Exchange Rates Avoid big Losses but Volatility is Intensifying
At the beginning of the week, the Pound was hit by weekend news that Britain was headed for another coronavirus lockdown of sorts.
The UK government has been avoiding a stricter lockdown, but its tiered restriction system has been perceived as not doing enough to prevent a huge surge in coronavirus cases.
As a result, while the government has been hesitant to use the phrase ‘lockdown’, analysts are essentially seeing the new nationwide restrictions as one.
Despite this though, the Pound has been able to avoid losses against the Euro.
This is partially due to weakness in the Euro amid US 2020 Presidential Election uncertainty. However, Sterling’s resilient is partially a result of hopes that the Brexit process will lead to a deal in the coming weeks, even if Britain’s coronavirus situation worsens.
According to Neil Jones, Head of European Hedge Fund Sales at Mizuho:
‘It’s a bit of a perfect storm for the Pound,
There are three major factors of which the outcome is unclear - elections, COVID19, Brexit - and that’s a solid backdrop for high volatility.
Market participants think, we’re not sure what the outcome is, but chances are Sterling won’t stay where it is given these three major risk events,’
Recent UK data has had little impact on the Pound’s movement. This is because Britain’s economy is expected to take another turn for the worse as Britain heads for a second lockdown.
EUR Exchange Rates Under Pressure as Election Panic Sends Investors to Safer Havens
The Euro has seen poor performance over the past week, as it slides against its biggest rival the US Dollar (USD).
The Euro and US Dollar (USD) often share a negative correlation. This means that the Euro tends to weaken in times of US Dollar strength.
As global coronavirus and US election concerns are keeping markets anxious, investors are buying the US Dollar as a safe haven.
According to Yohay Elam, Analyst at FXStreet:
‘A contested election raises chances of a constitutional crisis and violence on the streets, sending investors to the safety of the greenback and plunging EUR/USD.’
On top of this, the Euro’s appeal has been even weaker due to concerns over the Eurozone’s coronavirus situation.
Cases are surging in many major Eurozone nations. As a result, fresh restrictions are being seen in Germany and France among other nations. This is leading to fears of weak economic performance for the Eurozone in Q4.
GBP/EUR Exchange Rate Forecast: US 2020 Presidential Election to Dominate Markets
Later today, during the American session, US citizens will head to the polls to decide on the next US President. However, an already widely watched contest with big global impact is even more likely to dominate the global market outlook this year.
There are persisting fears that the election result could be contested if it is close, or that there may be attempts from US President Donald Trump to call the election result into question.
What’s more, the coronavirus pandemic means that votes may take longer to be counted than usual. Some suggest it may be weeks before the final tally is known.
If there is a clearer US election result, the Euro may strengthen as investors would be more willing to take risks again and the safe haven US Dollar would slide.
GBP/EUR may fall further if UK economic uncertainties rise as well. Britain will head back into lockdown on the 5th of November, so this could mean continued pressure on Sterling.
Pound to Euro exchange rate investors will of course watch Thursday’s Bank of England (BoE)
policy decision carefully as well.
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TAGS: Pound Euro Forecasts