The exchange rate from pound sterling to the euro increased overnight after the announcement by the European Central Bank (ECB) which plans to announce a gigantic quantitative easing program to combat the negative impact of the coronavirus epidemic in Europe. The euro came under severe pressure on Thursday after the overnight announcement of the launch of the pandemic emergency purchase program (PEPP). The plan calls for Christine Lagarde’s board of directors to spend an additional € 750 billion on European government bonds and corporate bonds before the end of the year. The news, obviously with any method of easing the currency, made the euro decrease. This offered GBP investors the opportunity to weigh the possibility of a weaker euro margin after weeks of single currency dominated markets.
The ECB announces an emergency QE program to compensate for damage to coronavirus
Policy makers from the European Central Bank announced yesterday evening that they intend to launch a quantitative easing pandemic emergency purchase program (PEPP) which will see Christine Lagarde’s Governing Council purchase an additional € 750 billion in European government bonds and corporate bonds within the end of the year. Purchases will be conducted at least until the end of 2020 under the new program, which may purchase a wider range of instruments than the existing instrument, including government bonds of the Greek government and non-financial corporations.
The central bank noted that “The Governing Council of the ECB is committed to playing its role in supporting all citizens of the euro area at this extremely challenging time. To this end, the ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that allow them to absorb this shock. This also applies to families, businesses, banks and governments. “
Following the move, the euro fell against the pound and most other rivals following the announcement of the QE program. The decision for QE came after a mass departure from the continental financial markets which put simultaneous pressure on risky assets such as securities and traditional safe haven activities such as government bonds.
Outlook for Euro expected to drop
Markets continued their slump even after governments announced contingency plans to combat the COVID-19 epidemic that paralyzed three major European economies in a “bloc” where citizens are confined to homes and operations of the companies have been severely interrupted. The euro has suffered and declined since it came close to 1.15 on Monday. This was perceived as a significant turning point in the market because it coincided with the positioning of investors in the futures market, going from a large net “short position” to an almost neutral position after days of extreme volatility. As a result, it resulted in losses for equities, commodities and emerging market currencies. The European economy has already fallen lower before the virus ever appeared in China’s Wuhan, and three of the four largest economies in the Eurozone have since been blocked, causing chaos for economic production in the Eurozone.
GBP investors will pay close attention to the development of the Eurozone crisis as it could offer traders the opportunity to witness a higher GBP / EUR exchange rate. The fallout from coronavirus is expected to continue and any development is likely to advance the single currency.
If you have an impending currency transfer and would like to learn more about the factors affecting the pound / euro rates, you can contact me directly, James Lovick, I will be happy to respond personally and discuss your request.