Pound Euro Exchange Rate Struggles as Coronavirus Lockdown Hits UK Sentiment

Pound Euro Exchange Rate Gives Up Brexit Relief Gains on new Covid19 Fears 

Despite relief that a no-deal Brexit has been avoided, the Pound Euro (GBP/EUR) exchange rate is tumbling this week. Investors began to sell the Pound (GBP) on fresh coronavirus fears, as Britain entered a third national lockdown. 

Last week was a fairly bullish week for GBP/EUR, as the pair benefitted from news of the UK-EU Brexit deal being implemented. GBP/EUR climbed and closed the week at around the level of 1.1231. 

When markets opened this week, GBP/EUR briefly hopped to a 4-month-best of 1.1260 before slumping again. At the time of writing, GBP/EUR has lost much of last week’s gains and trends in the region of 1.1065. 

With the Eurozone outlook steadier than some rival economy outlooks, the Euro (EUR) could continue to benefit from rival currency weakness as well. 

Pound (GBP) Exchange Rates Sliding as UK Hit by Fresh Coronavirus Panic 

Last night, UK Prime Minister Boris Johnson announced that England would see a new nationwide lockdown to limit the spread of coronavirus Covid19. 

The pandemic picked up considerably in December. A new more infectious strain of the virus has only made a surge of infections more worrying, as the nation sees its worst infection rates since the beginning of the pandemic. 

As the government announces a new lockdown for Britain, the Treasury has announced more fiscal support for businesses. 

However, after multiple lockdowns with unpredictable measures from the government, businesses are already concerned that the government will not go far enough for suppliers and smaller businesses without pressure. 

Euro (EUR) Exchange Rates Supported by Solid Winter Data 

Despite concerns that the coronavirus pandemic would have a big impact on economic activity in the normally busy holiday period, Germany’s November retail sales results beat forecasts. 

German retail sales were expected to contract at –2% month-on-month in November, but instead jumped to 1.9%. The yearly figure slipped to 5.6% rather than the expected 3.9%. 

Unemployment was also better than expected. German unemployment dropped by –37k rather than rising as expected. 

On top of these solid stats, the Euro continues to benefit from weakness in rival currencies. As the Pound and US Dollar (USD) are both weaker on their own domestic concerns, the Euro is more appealing in comparison. 

Pound Euro (GBP/EUR) Exchange Rate May Steady as Market Prices in UK Lockdown 

The shock of a third national lockdown for Britain is keeping the Pound unappealing. However, while markets will continue to price in this shock and it may drive the Pound lower for a while, a lack of new shocks could mean the Pound steadies soon too. 

As the shocks to the Pound steady, a lack of new downside impetus could instead leave the Pound recovering instead. 

After all, Britain avoiding a no-deal Brexit has improved the British currency’s outlook considerably. If upcoming UK data is better than expected, it could boost hopes for UK economic resilience. 

Wednesday will see the publication of Britain’s December services and composite PMI results. They will give investors a better idea of how Britain’s key services sector performed during the holiday period, even with much of the UK stuck in coronavirus restrictions. 

If the data beats forecasts, it could boost hopes of Britain’s economic resilience and boost the Pound as well. 

The Euro will continue to react to movement in rival currencies like the Pound. If Eurozone data continues to impress, it could overshadow the Eurozone’s own coronavirus concerns and pressure the Pound Euro exchange rate.