New Coronavirus Strain Keeping Pound Euro GBP/EUR Exchange Rate Volatile

Pound Euro Exchange Rate Recovers Some Losses amid Brexit Deal Hopes 

Despite a new coronavirus strain being discovered in Britain, the Pound to Euro (GBP/EUR) exchange rate recovered from its worst levels last night and is holding its ground today. The Euro (EUR) is unappealing as well, as investors look for safe havens. 

Since opening this week at the level 1.1032, GBP/EUR has been trending with a downside bias. GBP/EUR briefly touched on a low of 1.0852 yesterday, which was the worst level for the pair in three months, since September. 

GBP/EUR has since rebounded from those lows, and trends in the region of 1.0993. GBP/EUR has been able to sustain most of last week’s recovery despite the coronavirus panic sweeping Britain. 

Markets are calming a little from the panic today. However, analysts warn that the coronavirus situation could still worsen. 

Pound (GBP) Exchange Rate Steadies after Monday’s Coronavirus Shock 

The Pound (GBP) was throttled by fears surrounding a new strain of the coronavirus Covid19 yesterday. The new strain, found in South-East England, is reportedly more infectious. 

It caused the UK government to announce stricter restrictions for South-East regions, including London. Fears that the new strain may only spread further due to its higher infection-rate spooked markets and caused a broad UK selloff yesterday. 

Today though, Sterling is steadying slightly. It is being boosted by hopes that border issues caused by the new strain will be resolved, as well as hopes that existing vaccines will work against this new strain. 

According to Russ Mould, Investment Director at AJ Bell: 

‘Yesterday’s declines were driven by investors getting a cold shower from Covid-related setbacks. Optimism had been running high and so the sudden escalation of the new virus variant and subsequent movement and business trading restrictions caught investors off guard.’ 

Today’s UK growth rate report also beat expectations and helped Sterling to buoy from lows slightly. 

Euro (EUR) Exchange Rates Weak as Euro Loses Out to Rival US Dollar (USD) 

The Euro’s strong streak has come to an end for now. 

Amid panic over a new coronavirus strain, markets are looking for safe havens again. This has caused the safe haven US Dollar (USD) to rebound from recent losses. 

As the Euro is the US Dollar’s biggest rival, this has also meant Euro weakness.  

There are also concerns that the Eurozone could be hit by this new coronavirus strain. At the very least, threats of more potential lockdowns in the Eurozone continue to weigh on the Euro outlook. 

Pound Euro (GBP/EUR) Exchange Rate Could Be in for Continued Weakness 

With many markets expected to close for the holiday season soon, there is not much data due for publication through the end of the year. 

This is likely to leave the Pound to Euro exchange rate focused on developments in the coronavirus pandemic and Brexit process

Concerns of a cliff-edge scenario for Britain’s economy at the end of the year persist. On top of this, the new coronavirus situation is still developing. 

Analysts believe another UK-wide lockdown is likely, which could mean that the Pound will remain weak going forward. Russ Mould at AJ Bell said: 

‘The prospect of another nationwide lockdown seems inevitable going into 2021 and so earnings expectations for many industry sectors may have to be downgraded’ 

As for the Euro, it will likely continue to be driven by strength in rival currencies. If investors become more willing to take risks again, the Euro could climb against its rival the US Dollar and recover. 

Overall, coronavirus and Brexit developments will remain the primary focus for the Pound Euro exchange rate.