The single currency's prospects for the second half of the year have once again been brought into question following Bundesbank's decision to revise it's growth forecasts for Germany as a result of the clear slowdown in international demand due to the ongoing trade disputes. Bundesbank slashed their 2019 projections down to just 0.6% from 1.6%, reflecting the quite severe shift in business confidence within Germany at present.

Currency Pair		% Change (Month)	Difference on £200,000
GBP	EUR	2.40%	€5,400

The drop in projections further justifies the European Central Bank's (ECB) hints from last Thursday. President Mario Draghi alluded to the fact the ECB will consider intensifying it's monetary stimulus into the EU bloc once more in a bid to help alleviate the uncertainty faced by European businesses as a result of the global trade tensions, and help rekindle inflation levels within the bloc.

The shift in stance compared to the start of the year is staggering, and although the euro has managed to hold it's ground against it's currency counterpart parts so far, this may be more down to weakness further afield as opposed to clear euro strength. It may be a just a matter of time before this underlying faith is pulled into question.

Italy's debt to take centre stage this week

The euro's next clear test will come this week as EU governments prepare to meet on Tuesday to deliberate over the handling of Italy's debt crisis. There has been plenty of posturing from Rome in the build up, with multiple reports suggesting that the Italian leaders are confident on being able to produce a deficit that is comfortably below the 2.4% of GDP target, and even below the 2.04% level that was agreed upon back in December of last year.

The validity of these reports are questionable given the nature of the promises made by the current coalition parties in power at present, with tax cuts and impressive investment programs forecasted for 2020 likely to worry the other EU members deeply.

The face off could prove symbolic as Brussells fights to impose its authority over its members and we could see volatility on euro exchange rates as a result.

News

29th May 2020

GBP Exchange Rates Continue to Be Influenced by Coronavirus

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By Tom Higham