After dropping 1.5% versus the euro at the start of last week, the pound spent the rest of the week clawing back those losses. The Bank of England calmed investors’ fears of an immediate rate cute, lifting sterling. Pound versus Euro exchange rate finished the previous week just 0.5% lower at €1.1562.
At the start of the new week the Pound is on the back foot once again. At 06:30 UTC, GBP/USD is trading 0.7% lower at €1.1470, as investors digest the latest coronavirus developments and ahead of eurozone data.
UK Coronavirus Case Numbers Jump
Coronavirus continues to dominate both the media and investors’ attention. There are now over 100,000 confirmed cases globally and over 3500 people have lost their lives to the killer virus. As the number of cases outside of China increased and the stock markets plummeted, the Fed cut the interest rate by 50 basis points.
Fears that the Bank of England would follow suit sent the pound plummeting a week ago. However, the incoming BoE Governor Andrew Bailey has said that he would rather wait to see what the Chancellor has to offer in his Budget this week and what the data is saying before taking any action cutting rates. This calmed pound investors and lifted the pound.
In addition to coronavirus and the Budget, Brexit will also remain in focus and could cap any gains. The mood towards the pound dampened at the end of last week after Chief negotiator Michel Barnier said that there will be difficulties in reaching an agreement by the end of the transition period, the end of the year.
Euro Gains On Dollar Weakness
Investors will be watching the European Central Bank’s response to the coronavirus outbreak. Italy, the eurozone’s third largest economy has put 16 million citizens on lock down as the number of coronavirus infected hits 7365.
The ECB is due to make its monetary policy announcement this week. The markets are growing increasingly convinced that the ECB will cut interest rates from -0.5% to -0.6%. This move is unlikely to weigh heavily on the euro unless combined with other action. Instead the euro continues to gain as the US Dollar plunges. The euro trades in inversely to the US Dollar and with more Fed cuts expected the US Dollar shows no signs of recovery.
Investors could look past German industrial production, which is expected to show that the pace of contraction eased in January. Instead investors could pay more attention to eurozone sentiment data which analysts are expecting investor confidence to dive in March, owing to the expected impact of coronavirus.
