The pound managed to gain ground on the euro yesterday in some welcome news for investors. Despite EU leaders sealing a deal on a coronavirus recovery plan, the euro “softened” against the pound. EU leaders yesterday agreed on a €750billion (£676.37billion) pandemic recovery fund and their long-term spending plans.
“Looking ahead, another sparse economic calendar awaits, ensuring that trade today will once again be a competition for investors’ attention between COVID headlines and corporate earnings.”
Ranko Berich, Head of Market Analysis at Monex Europe, said: “The euro is treading water this morning despite the historic nature of the EU recovery fund, in a classic case of ‘buy the rumour, sell the fact’.
“The writing was on the wall for some type of deal with substantial grants as early as May when Angela Merkel and Emmanuel Macron made a public joint proposal for mutualised debt to fund grants.
“Markets correctly predicted the outcome of the last couple of weeks of horse-trading with the “frugal four” and traded the euro higher accordingly.
“Although euro traders priced in the development weeks or even months ago, the significance of today’s deal is hard to overstate: there will finally be a joint European debt instrument.
“Although the €750billion package may be relatively modest in comparison to fiscal stimulus in the US, this is beside the point.
“A mutualised debt instrument allows governments such as Italy and Spain to deploy recovery funds without further stressing their debt sustainability.
“More importantly, it sends a signal to markets that the European Union remains willing to evolve in response to existential threats, and that in future crises the Union may be less reliant on unilateral heroics from the European Central Bank.”
George Vessey, UK Currency Strategist at Western Union Business Solutions said: “The British Pound is enjoying a welcomed boost following the promising news of a Covid-19 vaccine being developed by AstraZeneca and scientists at the University of Oxford. Sterling currency pairs shot higher yesterday, particularly against traditional safe havens such as the Japanese Yen, Swiss Franc. GBP/USD has climbed 2.5 percent this month and wrestles with a key resistance level this morning.”
Mr Vessey added: “After days of negotiations, leaders of the 27 EU countries finally came to a unanimous agreement on €750billion in coronavirus recovery funds. The landmark stimulus agreement was closely watched by investors though the reaction in currency markets has been surprisingly subdued.
“The recovery fund was heavily scrutinised by more frugal European nations such as the Netherlands but eventually a compromise saw the package divided into grants worth €390billion and low-interest loans worth €360billion.
“The euro did clinch fresh four-month highs versus the US Dollar, whilst riskier commodity currencies and the pound also strengthened, though arguably the positive news was already priced in. That said, the symbolism of this historic deal as a sign of solidarity and unity will likely be supportive for the common currency and a break of the $1.15 handle cannot be ruled out for EUR/USD.
“GBP/EUR had dipped under €1.0950 on Friday and Monday but has extended towards the €1.11 threshold this morning as traders take profit on their positive euro bets. Nevertheless, GBP/EUR remains confined in a downtrend channel established since early April with significant resistance seen near €1.1150.”
Now that travel abroad is back on the cards for some Britons, the exchange rate has become even more important for those looking to get away.
The Post Office is currently offering a pound to euro exchange rate of 1.0547 for amounts over £400.
The exchange rate then improves if you spend more.
The rate increases to 1.0700 for over £500 and 1.0755 for over £1000.