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Monthly wrap: EUR – Mixed ECB signals drive euro volatility as recession fears grow

currency-newsMonthly wrap: EUR – Mixed ECB signals drive euro volatility as recession fears grow
Key takeaways:
 
  • Lack of ECB interest rate cut fuels euro slump
 
  • Covid-19 pandemic raises odds of deeper Eurozone recession
 
  • EUR Monthly lows: £0.86, $1.06, C$1.48, A$1.67, NZ$1.76
 
  • EUR Monthly highs: £0.94, $1.14, C$1.59, A$1.97, NZ$1.98
 
The euro came under significant pressure in March as Europe became the epicentre of the Coronavirus pandemic and the European Central Bank (ECB) surprised markets by leaving interest rates on hold at its March policy meeting.
 
While the ECB expanded its quantitative easing programme this was not enough to reassure investors who had bet on rates being cut deeper into negative territory.
 
Subsequent comments from ECB President Christine Lagarde added to the bearish mood, as she indicated a preference for fiscal intervention over future monetary policy action.
 
This left EUR exchange rates on the back foot as the prospect of recession hung over the Eurozone economy.
 
The rising rate of infections and deaths in nations like Italy, Spain and France and the extension of nationwide lockdowns kept the euro on the back foot as March progressed.
 
The common currency was also undermined by strength in the US dollar as investors flocked to the safe-haven currency, as well as concerning manufacturing data for the Eurozone.
 
February’s German trade data could see the single currency falling out of favour once again, particularly if export volumes show a decline.
 
Evidence that the Eurozone’s powerhouse economy is struggling could encourage investors to sell out of the euro.
 
Coronavirus developments will also remain a primary cause of EUR exchange rate volatility in the coming weeks.
 
The common currency may start to move higher if the infection rate shows signs of levelling off or falling in the worst affected areas.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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