- Posted by currencies in Bank of England, Bremain, Brexit, Budget, Currency, Dollar, Economy, election, EUR, GBP, Mark Carney, Rate Cuts, Sterling, UK, Uncategorised
- March 9, 2020
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GBP conceded its fourth consecutive weekly loss against the EUR last week due to a combination of pessimistic Brexit Talks and increasing concerns surrounding the Coronavirus.
The EUR has been the best performing currency over the past 7 days, mainly due to “carry trades” between the EUR & USD. Expectations suggest this could also happen between EUR & GBP if the Bank of England cut interest rates before or on March 26th to fall in line with The Fed Reserve.
Sterling has room to climb against the EUR in the early part of this week, with Italy having quarantined 16 million people in the Lombardy region which includes Italy’s financial hub Milan. This method of containment was used by China and has had a direct effect on their economy for the first quarter of 2020. With Italy already in a recession, the fears are this could further damage the economy. Italy are one of The UK’s top 10 trading partners however, so any further damage to Italy could hurt The UK economy.
This weekend saw many consumers panic buy all essentials across the country due to fear of the true damage of the Coronavirus. In the short term, consumers self-isolating could have a detrimental effect on the economy, most likely a hit on GDP. UK GDP has been adjusted to 0.7% for the year, down from 1.0%. GDP for the first quarter is expected to have grown 0.2% (below expectations of 0.3%) and rumours suggest 0% growth in the 2nd quarter.
Although incoming Bank of England governor Bailey has stated he is willing to Play a game of ‘wait and see’ with interest rates, a rate cut is fully priced in for March 26th. The question is pretty much whether it’ll be a 25bps or 50bps cut. The upcoming budget on Thursday will also have an effect on GBP with investors keen to see how the UK will support the economy throughout this testing period.