Given the size of the lifeline that the UK government threw to small and medium size businesses the Pound’s reaction was rather lacklustre. The Pound picked up from session lows of €1.0936 on Tuesday but importantly remains below the key psychological level of €1.10.
At 06:30 UTC, Pound versus Euro is trading 0.2% higher at €1.0987 as investors continue digesting the latest coronavirus developments.
GBP/EUR: Chancellor’s Lifeline
The pound advanced after the Chancellor Rishi Sunak announced a £330 billion rescue package for UK companies to shield them from the economic impact of coronavirus. The Government offer will include business of up to £5 million, three-month mortgage holidays and no rates for pubs and restaurants for a year.
This is a colossal sized support package that the government is pledging to help struggling business cope with the economic disruption caused by the coronavirus outbreak. It comes as the UK government suggests stricter social distancing, isolation and quarantine measures to slowdown the spread of coronavirus. These are the measure which will see consumption in UK drop sharply.
The move by the government essentially aims to stop the UK going bust. Hundreds of billions of pounds will be pumped into business to ensure that they survive the coming months of unprecedented supply and demand shock. Chancellor Rishi Sunak even indicated that the Government was prepared to go further if necessary. Given the Pound’s half heated response, he may need to.
Euro Struggles As Sentiment Plunges
The euro was on the back foot on Tuesday as coronavirus keeps spreading in Europe exponentially. It remains the epicentre of the outbreak. Italy which now has 38,000 cases is expected to peak next weekend.
The economic hit is expected to be extensive. The ZEW sentiment data showed a record decline in morale March. German economic sentiment dropped to -49.5 in March against +8.7 in February. This was the biggest decline on record and was also well short of -26.4 forecast as initial coronavirus impact is seen.
Spain and France have also unveiled emergency rescue packages to attempt to mitigate the economic blow that social distancing, isolation and quarantine are having on the respective economies.
