Euro fluctuates in the face of EU ‘coronabonds’ division

Currencies Direct

Coronavirus developments and March's economic reports have continued dictating market sentiment in recent weeks, resulting in significant currency volatility.

The GBP/EUR exchange rate rose from lows of €1.06 to €1.14 while EUR/GBP dipped to €0.87. Meanwhile, GBP/USD recovered from 1.14 to 1.24, while EUR/USD fell from highs of 1.11 to around 1.07.

After sliding for most of March, the pound put on a strong performance last week, edging higher against the euro and US dollar. Sterling benefited despite weak services and manufacturing PMIs, both of which fell to record lows as the nationwide lockdown took its toll on the British economy. The euro, meanwhile, struggled in the face of German recession fears and a lack of cohesion within the European Union over coronabonds, a joint debt project that was rejected by Germany, Netherlands and other northern states.

The US dollar put on a mixed performance following the US Federal Reserve's massive $2 trillion stimulus package but was largely bolstered by investors' demand for safe-haven currencies. Even record-high unemployment claims failed to undermine USD exchange rates. The poor US employment data increased concerns for the global economic outlook, lending further support to safe-havens.

However, a decline in the number of coronavirus cases in Europe lead to a return of risk appetite at the beginning of April. The coronavirus will continue to dictate market sentiment in the weeks ahead, with investors paying close attention to the number of infections and deaths. The euro could start pushing higher if the figures keep declining in Spain and Italy.

Meanwhile, the pound could come under pressure from Thursday's UK industrial and manufacturing data, which is forecast to show output declined even before the coronavirus lockdown. Downing Street's announcements on the nation's coronavirus situation will also continue to influence the pound this week. Any indications of an extension to the lockdown could prove GBP-negative.

The US dollar will also remain reactive to the development of the US coronavirus crisis.

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