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Pound Euro Exchange Rate News: GBP/EUR Stumbles Ahead of Second UK Lockdown

November 4, 2020 - Written by John Cameron

Pound (GBP) Tumbles as Markets Brace for Second Lockdown

The Pound (GBP) is on the backfoot against the Euro (EUR) this morning as investors brace for England to enter a second national lockdown from midnight tonight.

MPs will vote on the lockdown later today, and despite some dissent from a number of Conservatives the new restrictions are likely to pass with the backing of Labour.

This unsurprisingly has left GBP investors pretty gloomy in their outlook for the UK economy, with most fearing that the UK now faces a double-dip recession this winter.

While Boris Johnson has insisted that the lockdown will conclude at the start of December, analysts fear it may likely be extended if the R rate doesn’t come down.

Johnson said:

‘We have a very clear way ahead. These measures – the crucial thing to understand is that they expire on 2 December. They come to an end. And we therefore as a government and indeed as a country have a deadline and a target to develop solutions which previously … did not exist.’

Piling further pressure on the Pound this morning is the release of the UK’s finalised services PMI for October, which was revised lower than initial estimates, stoking further concerns over UK growth in the fourth quarter.

Euro (EUR) Buoyed as Eurozone Economy Narrowly Avoids Contraction in October

At the same time, the Euro (EUR) has found some modest support this morning after the Eurozone’s latest PMI figures point to the bloc narrowly avoiding contraction at the start of the fourth quarter.

According to finalised figures published by IHS Markit, the composite PMI came in at 50 last month, beating a previous estimate of 49.4.

While this may have beaten expectations, October’s figures still point to a likely stagnation of growth in the Eurozone economy at the start of the fourth quarter, with analysts warning that the worst is yet to come as countries go back into lockdown.

Chris Williamson, Chief Business Economist at IHS Markit said: ‘With lockdown measures being tightened, it is becoming increasingly hard to see how the eurozone economy will avoid falling back into decline, especially as some countries, including France, Italy and Spain, are already contracting again.’

GBP/EUR Exchange Rate Forecast: BoE to Expand Stimulus Programme

Looking ahead to the second half of the week, movement in the Pound to Euro (GBP/EUR) exchange rate looks to be driven by the Bank of England’s (BoE) latest policy decision.

Economists are widely expecting the BoE to announce an £100bn expansion of its quantitative easing programme this month as it seeks to support the UK economy amidst the ongoing coronavirus pandemic.

However, GBP investors are likely to raise concerns over whether this will be enough, particularly as the UK heads into a second lockdown.

Also, of interest to traders will be the bank’s stance on negative interest rates, but with review on the impact of sub-zero rates still ongoing the BoE expected to keep its cards close to its chest on this one.

Meanwhile, the focus for EUR investors tomorrow will be on the Eurozone’s latest retail sales figures, where an expected slump in sales growth in September is likely to weigh on the Euro.
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