The Single has gained against the majors today despite the Eurozone being one of the most exposed global economies to the coronavirus. The Euro is known as a funding currency, due to its 0% interest rate. Investors borrow in Euros to funds investments in high-yielding assets such as stocks. When we see a stock sell off, the Euro benefits from a return in funds as investors liquidate positions. EUR/USD spiked earlier today to the highest level is over a year when it hit 1.15. This trend can also be seen with GBP/EUR dropping to 1.14, the lowest level since October 2019.
The Pound has dropped to a five-month low against the Euro amidst a fresh market panic over the coronavirus outbreak which has prompted significant falls in the stock and oil market. The price of oil fell by 30% at the start of trading this morning, pushing prices in the low $30 a barrel. The FTSE100 also dropped 8% this morning, not surprising given the index’s heavy reliance on petro stocks. Germany and France are both 7.0% lower while futures indicate the Dow Jones and S&P 500 will open 5.0% down.
The current coronavirus meltdown in the stock markets has seen global investors turn more bearish which inevitably means inflows of foreign investor capital into the UK could be at risk of drying up. If this sell off continues, we could see the Pound get hit even harder. It will be interesting to see if the Bank of England decide to cut rates at the end of March to try and prop up the UK economy, futures markets are now showing a 60% change of a cut to 0.50%. We could also see the Pound weaken if the chance of an interest rate cut increases.
Get in touch today to discuss your options.