The British pound is lower against the euro on Friday with an unwind of euro-based carry trades driving a big broad move higher in the euro, most notably against the US dollar but also against the Sterling.
Pound versus euro was down by 57 pips (-0.51%) at 1.1474 with a daily price range of 1.1473 to 1.1557 as of 1.30pm GMT. GBP/EUR is adding to losses made yesterday of -0.17% and has so far notched up a drop of -1.25% this week.
Pound still just off the 4-month low reached on Monday
Words of support from incoming Bank of England Governor Andrew Bailey shielded the pound slightly against the euro onslaught. The pound is still just off the 4-month low reached on Monday. The pound is performing better against a weaker US dollar.
There was little in the way of market-moving economic data from the UK and even Brexit trade negotiations are on the back burner amid growing fears over the coronavirus. Global equity markets are in meltdown mode with the UK’s FTSE 100 and Germany’s DAX index both lower by over 3%. European bank shares are now at the lowest valuation by book value since the financial crisis.
The euro
As investors sell out of global stock markets, they are putting their money in cash, so the strength in the euro can be explained by European investors and institutions repatriating money quickly back into Europe.
The expectation is that governments will eventually add fiscal stimulus programs, but before that happens central banks have indicated they are ready to lower interest rates. The ECB is in one of the more difficult positions and any new stimulus program it implements to protect the European economy from the coronavirus will likely be less than in other nations, including the UK.
More aggressive monetary easing means the currency typically weakens. The Federal Reserve in the United States and the Bank of England are able to lower interest rates further than in Europe where interest rates are already negative. This means the US dollar and to a lesser extend the British pound are falling against the euro.
