In a direct response to the COVID-19 pandemic, the pound to euro exchange rate plummeted. It fell dramatically yesterday, with some fearing the euro could overtake sterling.
The fluctuations are driven by headlines as well as the decisions of governments and central banks. The volatility is not just found in the foreign exchange market, it is also found in markets across the world.
Boris Johnson’s announcements regarding travel restrictions has had a significant impact on all areas of the economy. How long it takes the Prime Minister and other world leaders to lift the ban on non-essential travel will directly influence FX markets. Yesterday, the US government agreed on a $2 trillion stimulus package that is hoped to reduce some of the market volatility and see the stock markets climb back up.
Greg Baggio, Head of Performance at WeSwap commented on how COVID-19 has affected the FX market:
“Across all markets, we’ve seen extreme volatility levels and the FX market is no different. Currency movements are not only driven by headlines on COVID-19’s progress, but also by the various governments and central banks’ decisions on interest rates and cash injections to support their economies. The ultimate question the markets are asking is ‘how strong is a country going to come out of the crisis and will they be able to attract investment again?
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In addition, some currencies like the US dollar are considered a safe-haven when everything else goes awry and the dollar’s strength has been detrimental to the pound in the last 2 weeks, dropping from highs of 1.32 down to around 1.15. Although we’ve finally seen some relief as the stock markets bounced back yesterday following the US Government’s agreement of a $2 trillion stimulus package.”
By Luke Jefferies