The British pound is higher against the euro on Wednesday amid a generally more positive tone to financial markets in the aftermath of an emergency Federal Reserve rate cut that had caused a kneejerk fearful reaction yesterday.
Pound versus euro was up by 73 pips (+0.64%) at 1.1537 with a daily price range of 1.1436 to 1.1545 as of 1.30pm GMT.
GBP/EUR: The pound edged higher throughout the day
The British pound edged higher throughout the day despite rumours there would be an emergency Bank of England rate cut to match the actions of the Federal Reserve. The decision never came to pass but banking analysts are predicting there will be a UK rate cut at the scheduled meeting on March 26 – or sooner.
While the pound may have been easing back after a string of daily losses against the euro in the last week, there was a different reaction in UK government bond markets. Expectations of an economic slowdown and the resultant lowering of interest rates saw the UK 10-year gilt yield fall to a record low.
The euro
Bad news out of Italy on the coronavirus and the likelihood of a downgrade to GDP forecasts from the European Commission were weighing on the euro. The EC has said the coronavirus will have an extended hit to the European economy and thinks Italy and France could enter recession as a result. The Commission also cast doubt on the economic recovery, suggesting it might not be V shaped as initially assumed.
Italy will close all schools and universities for two weeks as the Italian government ramps up its efforts to contain the spread of the virus. Travellers from Italy have been the biggest cause of the spread in the virus to other parts of Europe, including the United Kingdom.
Authorities in Europe are apparently still mulling how to go about a program of fiscal stimulus. It does appear that something will happen, but the size of the program might not measure up to the scale of the potential disruption to the economy. German finance minister Scholz told lawmakers fiscal measures would be “timely, targeted, temporary”. It has also been reported the ECB had a conference call yesterday to assess coronavirus situation.
