- EUR/GBP is testing the downside but bulls are lurking.
- EUR/GBP parity could be on the cards in the not too distant future.
EUR/GBP has been sliding to a key support structure and is currently trading -0.66% having fallen within a range of between 0.9239 and 0.9057 as the pound firms up the hardest vs the declining greenback. The Bank of England announcement was a temporary roadblock for the GBP bulls while US jobless claims took over the market’s concern.
EUR/GBP parity here we come?
BoE: Corona shock to weaken the sterling – Nordea
The Bank of England announced its latest monetary policy decision and left interest rates unchanged at 0.10%. At the same time, in its accompanying policy statement, the Monetary Policy Committee was noted that it stands ready to expand asset purchase further if needed, which seemed to be the only factor that exerted some downward pressure sterling. Meanwhile, the markets foresight remains that a UK recession is inevitable and with the BoE asset purchases as a heavy weight for the pound and rates, there is an increasing number of risks that could take EUR/GBP to parity.
European nations may well be overwhelmed with the number of cases and the virus thriving in the region, but we should not forget that the UK may not be far behind and considering its late call to action to lock down the population, we are yet to see how badly contaminated the UK really is. If the UK is anything like what we are seeing in Italy and now Spain, the UK’s financial system will be the pounds biggest risk. If the UK economy takes a slightly harder hit in the next three months than the euro area, EUR/GBP would likely rise.
On a footnote, also, we have the end-June deadline for extending the Brexit transition period is on the horizon and Boris Johnson may well wish to stick to his guns despite COVID-19 and take the UK off the negotiation table which means a hard Brexit and a Canada+ agreement is not on the cards – another likely spanner in the works for the pound. EUR/GBP parity here we come?