The British pound is down big against the euro on Monday afternoon as a worsening coronavirus outbreak in Europe increases bets that there will need to be higher government spending while soothing talk from Bank of England Governor Mark Carney are raising expectations again for a cut to UK interest rates.
GBP/EUR was lower by 178 pips (-1.53%) at 1.1471 with a daily price range of 1.1469 to 1.1635 as of 1.30pm GMT.
GBP/EUR has plummeted 500 pips from last Tuesday’s peak just shy of 1.20 and is now below the 1.15 handle.
The pound
The Bank of England has joined in a chorus of central banks in the last two days who are talking up the prospect of monetary measures to fight the coronavirus. Governor Mark Carney has said the Bank of England is working with HM Treasury and Financial Conduct authority (FCA) to ensure ‘all necessary steps are taken’ to protect financial stability. The soothing words came after plummeting share prices wiped £20 billion off the value of the UK stock market in a week.
The many times-delayed UK Budget will go ahead on March 11 as planned according to a government spokesperson on Monday. It is not yet clear whether the budget will include any special measures to deal with COVID19.
The euro
There was the first sign that European governments are acting to combat the impact of the coronavirus on Monday when Italy announced a 3.6 billion euro ($4 billion) stimulus package. Italy has had the highest number of cases of COVID19 in the Euro-area with nearly 1700 cases and 41 deaths. The package will need to be approved by the European Commission because it would take Italy outside of the allowable government budget deficit according to EU rules.
There is no word from ECB vis-à-vis monetary easing. This contrasts with the Bank of England as mentioned above, the Federal Reserve opening the door to a rate cut on Friday and the Bank of Japan which bought the most ETFs on record on Monday and said it will “provide ample liquidity”.
