The Pound snapped a five-week losing streak versus the Euro in the previous week. The Pound versus Euro exchange rate soared 2.7% last week, paring some of the 10% losses that the pair has experienced since mid-February. The Pound is consolidating those gains at the start of the new trading week.
At 06:30 GBP/EUR was trading flat at €1.1175, as investors consider lock down extensions and as investors look ahead to Eurozone sentiment data.
UK Rating Cut By Fitch
The Pound put in a solid performance across the previous week, even gaining 1% on Friday dispute UK Prime Minister Boris Johnson and Health Secretary Matt Hancock testing positive for coronavirus. For now, symptoms are being described as mild with Boris Johnson remaining in charge of leading the county through the coronavirus outbreak.
The Pound pushed higher last week on improved confidence after the Chancellor Rishi Sunak announced further measures to support the UK economy. The Bank of England also said that they stood ready to do more if needed. The coordinated effort by the BoE and the UK government is expected to cushion the UK economy from the coronavirus hit. However, this is coming at an eye watering cost.
Late on Friday rating Agency Fitch lowered the UK’s credit rating to AA- from AA citing the impact of the pandemic on government finances.
Reports that normal life in the UK might not return for up to six months is unnerving Pound investors at the start of the week. Economists believe that the UK could potentially bounce back from a short-term demand shock, thanks to the measures taken but the BoE and the Government. However, a three month lock down and extension of social distancing until October, an idea being floated, would have a much deeper impact on the economy.
Confidence and German Inflation Data
The number of coronavirus cases and deaths continue to escalate in Europe. The total number of cases in Italy is approaching 100,000 whilst the death toll between Italy and Spain surpassed 17,000. However, officials say that the number of cases could be easing as the lock down is tightened.
As restrictions increase so does the economic impact of the virus. Investors will turn their attention to Eurozone economic confidence data and German inflation figures for March. Analysts are expecting Eurozone confidence to drop to 91.6, down from 103.5. German inflation is expected to drop from 1.7% to 1.3%. Weak numbers could drag on the Euro.