Even after a strong coordinated response from the Bank of England and the UK Government, the Pound still closed Wednesday’s session 0.5% lower at €1.1382. This was the third straight day of losses for the Pound versus Euro exchange rate.
At 06:30 UTC, GBP/EUR was extending losses down 0.3% at €1.1342 as investors looked ahead to the European Central Bank meeting.
Pound Falls Despite Coordinated Action
As the dust settles on events in the previous session, the Pound is extending losses raising questions over the impact of policy on the fear in the markets.
On Wednesday, coordinated monetary and fiscal monetary policy action between the BoE and the Government resulted in a 50-basis point rate cut combined with a £30 billion stimulus package to shore up the UK economy ahead amid the coronavirus slowdown.
Risk off continues to dominate the financial markets, after the World Health Organisation (WHO) Director General Tedros Adhanom Ghebreyesus declared the coronavirus outbreak a pandemic. This does not mean there are any immediate policy actions on the back of the declaration. It is up to each country to decide their policies. However, it has raised the level of fear in the financial markets. The UK stock market is trading lower.
There is no high impacting UK data due for release. Investors will continue reacting to coronavirus headlines.
Euro 10 Basis Point Cut Expected
Today it is the turn of the European Central Bank (ECB) to show the world what they are prepared and able to do to shore up the eurozone economy, amid the coronavirus threat. The ECB, contrary to the BoE and the Fed has not yet acted to counter the escalating crisis. However, the ECB has significantly less room to manoeuvre given the negative rates and current asset purchase programme.
The broad expectation is that the ECB will take action. The ECB are expected to make a 10-basis point rate cut taking it to -0.6%. They are also expected to increase asset purchases, or bond buying, to €40 billion per month. This will be the first real test for ECB Governor Christine Lagarde and she may have to sacrifice unity among policy makers in order to not underwhelm the market.
The ECB meeting comes as Italy, the eurozone’s third largest economy is in lock down. The economic and financial outlook for the eurozone has deteriorated. Christine Lagarde told European leaders earlier in the week that unless Europe took coordinated action Europe would see a scenario not dissimilar to 2008 Great Financial crisis.
