The British pound is lower against the euro on Monday as Sterling dropped off alongside global stock markets.
The euro has been one of the strongest performing currencies amid the coronavirus crisis. Although the euro has fallen against the dollar (EUR/USD 3 year low) it has held up against most other currencies.
Euro gains as investors seek cash
The World Health Organisation (WHO) designated Europe the new ‘epicentre’ of the coronavirus when the number of cases in China started to fall. So the outperformance of the currency is surprising on first glance.
The euro is the second most actively traded currency in the world so when investors are dumping investments during a panic such as this one, they are doing so to get cash. The second currency after the dollar to receive that cash in will be the euro. The euro is in effect a proxy for Europeans repatriating their money back into local cash.
The latest CFTC positioning data shows hedge funds and other speculators turned positive on the euro last week. Traders were net long the euro for the first time since September 2018. Expectations for higher fiscal spending in Europe and increased monetary easing in the US are likely reasons for the shift.
GBP/EUR was lower by 153 pips (-1.37%) to 1.0745 with a daily range of 1.0745 to 1.0924 as of 3pm GMT.
The currency pair had been steady near 1.09 but slipped back down towards 1.07 as the day went on. Last week the exchange rate fell -1.42%.
British pound drops before more UK social distancing rules
There had been a pickup in market sentiment but by the afternoon stocks were turning south alongside the British pound.
The Federal Reserve announced something akin to an open-ended quantitative easing program, which naturally lowered the value of the dollar. The dollar weakness helped Sterling and the euro but only the euro was able to sustain the gains. Traders are still looking to sell the pounce in the British pound ahead of likely new and more restrictive social distancing measures.