The British pound is down against the euro on Monday after data showed German investor sentiment improved in February. More broadly, stock markets are down sharply on an escalating number of coronavirus cases outside of China, especially in Italy and Iran.
GBP/EUR was lower by 30 pips (-0.26%) at 1.1919 with a daily price range of 1.1914 to 1.1985 as of 1pm GMT. The currency pair erased small early gains to slide back to touching distance of monthly lows.
Evidence of stabilising confidence in Germany helps the EUR make progress against the GBP
The IFO index for business expectations index rose to 93.4 from 92.9, confounding expectations for a fall to 92.2. Gains were capped by the rising possibility that Europe will be more deeply affected the COVID-19 outbreak than previously thought. Shares listed in Milan have crashed over 5% as the Eurozone’s third largest economy struggles to contain an outbreak in its Northern regions of Lombardy and Veneto.
Austria has halted train traffic to Italy as the country battles an unexpected spike in coronavirus cases. There was a specific concern that two of the passengers on an inbound train from Italy were infected. Italy has reported 219 cases since Friday and 5 people have died of the coronavirus. Analysts are reacting to the Italian government response to shutdown schools, museums and cancel football matches, calling it both proactive and ‘draconian.’
Trade uncertainty keeps GBP down
The pound was mixed on Monday as the UK parliament returns for a short recess in time for Prime Minister Boris Johnson’s government to begin trade negotiations with the European Union in a few days. Political pundits are starting to suggest the UK could even get the upper hand from its new tougher demand for a limited Canada-style FTA.
There is not much in the way of UK economic data this week so the impending EU trade talks as well as overall market risk-sentiment due to the coronavirus could be the main drivers for Sterling. The British currency has fallen over -1% against the euro in the past two weeks, mostly owing to trade uncertainty.