Good morning,

Whilst much of the time we focus on sterling and its shortcomings, as discussed in yesterday’s update; as always, it is vitally important to always consider the other side of the coin when discussing currency pairs. The euro, for example, is now at two-week lows against the pound and is well on track to forfeit over half of its coronavirus gains on its current trajectory. The reasons why, however, stem not only from the growing number of cases within mainland Europe but also in its collective inability to make decisive decisions quickly.

The key issue that is dragging the euro down against most of its peers, including the pound, dollar and Japanese yen, is that of quick cash distribution for all of its members from all of its members. The idea of a “Corona Bond” would entail the pooling of risk into an EU-wide bond sold to release billions of euros to the beleaguered member’s economies – much like the huge programmes of bond purchasing by the Bank of England or the Federal Bank in the USA. Sadly for the EU, the idea has not only been savaged by eurosceptic MEP’s but, more interestingly, the governments of more advanced EU economies, who dislike the shared debt approach.

To further the obvious point that mutual co-operation is one of the key principles of the EU’s being; a group of Italian MP’s wrote an open letter to the German government – who have been resisting the bond plan – to make clear “the EU does not have the means to respond to the crisis in a united front. If it does not prove that it exists, it will cease to exist.”

As for most of the world’s economies, a recession is assured; the question to be answered now is how quickly can each rebound – which in turn will dictate currency movements over the mid-term. Sadly, for the EU, squabbles over how to react, hostility to unilateral action and fears that the members may follow Britain’s example, mean the euro is in for a rougher ride than most of its nation-state led neighbours.

Have a great day,

Author: Joshua Haden-Jones, Senior Relationship Manager


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