GBP/EUR: Euro Rises as Italian Cabinet Discusses Stimulus Package

The British pound is lower against the euro on Thursday in lighter trading across FX markets following a heavy week of central bank intervention. The euro benefited from the suggestion the Italian government might seek to introduce a 20 billion euros stimulus package.

Pound versus euro was down by 21 pips (-0.18%) at 1.1534 with a daily price range of 1.1523 to 1.1599 as of 1.30pm GMT. GBP/EUR had rallied to 1.16 before dropping close to 80 pips then settling around 1.155.

EU trade talk comments from EU Chief negotiator weighed slightly on the pound

Although the comments were generally constructive, Barnier did again question the limited length of the transition period. Barnier said “agreement with UK possible even if difficult” but in an apparent attempt to raise “No Deal” fears he said the “difficulties of end of transition period are being underestimated.”  Spokesman for Boris Johnson James Slack said he was confident that Brexit would continue on schedule despite the economic impact from the coronavirus.

For those practicing technical analysis and watching the inverse of this exchange rate, the EUR/GBP has found resistance at its 200-day moving average, leading to some weakness in the past day (GBP/EUR strength).

Prospect of fiscal stimulus in Europe is keeping EUR bid against GBP and USD (EUR/GBP, EUR/USD)

EUR/USD briefly pushed above 1.12 on Thursday. Investors are putting greater weight on the potential increase in government spending than the rumoured 10 basis point cut to the ECB deposit rate.

The Italian Cabinet led by Prime Minister Conte are discussing a stimulus package to boost the economy and limit the negative impact of the coronavirus. There were reports the package could be as big as 20 billion euros. Deputy Finance Minister Castelli had said earlier that the package would probably amount to 5 billion euros.

European economic data was limited to the Germany February construction PMI which rose to 55.8 versus the 54.9 expected. Really the March data will be a better gauge of activity once the toll from the coronavirus and associated travel restriction and supply chain disruptions are more fully factored in.

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