EUR stumbles against GBP and USD following rise in Eurozone infections

Pound Sterling (GBP) is trading on the back foot against the US dollar (USD) but remains firm against the euro (EUR) today, as COVID-19 cases see resurgence amongst countries in the Eurozone, including Italy and Greece.

At the time of writing, the British pound to US dollar (GBP/USD) exchange rate has reversed yesterday’s gains and is trading lower at USD 1.38, having reached as high as USD 1.41 last week.

The British pound to euro (GBP/EUR continues to trade around the EUR 1.16 level, as the UK continues to benefit from rapid coronavirus vaccinations.

The euro (EUR) is also struggling against the US dollar (USD) as the Eurozone has been notoriously slow in deploying coronavirus vaccines in comparison to their currency peers.

While the single currency is outperforming the majority of its risk-on counterparts, the euro to US dollar (EUR/USD) exchange rate has plunged to USD 1.19, having reached USD 1.22 the previous trading week.

Coronavirus concerns in Europe dent EUR and GBP demand

This week has seen a rise in the number of daily recorded coronavirus cases in Italy and Greece. On the 3^rd March, new daily infections in Greece rose to 2,217, up from 1,783 a week previously. New daily infections in Italy during the same day rose to 22,845, up from 16,402 a week before.

As it stands, Greece’s coronavirus restrictions vary depending on location and rates of infection. Greece imposed stringent lockdown measures back in November and slowly began to reopen parts of its economy in January.

However, as cases began to rise in particular areas, certain locations were deemed ‘red zones’ and non-essential shops and services were forced to close once again, as well as strict curfews.

Italy also has a curfew in place from 10pm – 5am, which is mandatory nationwide, though some regions have reopened bars and restaurants but must close by 6pm.

Post Brexit cross border trading remains an issue

Whilst we are now three months into the Brexit transition period, it seems that tensions between the UK and EU are continuing. Cross border trading remains an issue due to post-Brexit red tape confusion, with food and agriculture suffering the most.

New post-Brexit trading rules mean that additional labelling and certificate checks must be completed when sending certain food items cross-border. It’s already been forecast that German exports to the UK plummeted by 30% in January, highlighting the trade difficulties experienced post-Brexit.

UK Chancellor, Rishi Sunak, revealed plans to increase the number of freeports in the UK, set to open during late 2021, though this has been met with mixed responses. Usual tax charges do not apply at Freeports, with the aim to make it easier and cheaper to conduct post-Brexit trade.

There are set to be eight new freeports across the UK, with the locations including East Midlands Airport, Liverpool and Plymouth. Whilst many believe the freeports will help to encourage manufacturing activity, some believe the benefits are not worth the cost to the taxpayer.

Sterling remains extends advances against Australian dollar

Thursday’s safe-haven environment has triggered sharp declines in the Australian dollar (AUD), which is currently trading lower against the US dollar (USD) at USD 0.77, having reached 0.78 during the beginning of the trading week.

The British pound to Australian dollar (GBP/AUD) exchange rate is also outperforming, with the currency pair trading higher at AUD 1.80.

The “Aussie” dollar initially plummeted after the Reserve Bank of Australia’s (RBA) Governor Philip Lowe stated that the central bank would leave interest rates at a record low at 0.1% and would remain at this level for three years. Mr Lowe has also stated that more bonds would be purchased to help support the Australian economy, which will likely ensure further downside pressure on AUD/GBP and AUD/USD in the short-term.

However, support for the Australian dollar (AUD) rose recently following news that unemployment rates are falling in the country from 6.6% in December, down to 6.4% in January. The rise marks the fourth consecutive month for employment growth, as Australia’s economy appears to be slowly bouncing back from COVID-19.

Economic optimism lifts GBP/ZAR

Optimism in the UK economy lifted the British pound to South African rand (GBP/ZAR) currency pairing to a four-month high this week. At the time of writing, the British pound to South African rand (GBP/ZAR) exchange rate is up at ZAR 21.11.

The boost in the UK’s economic outlook is largely down to a mixture of UK Prime Minister Boris Johnson’s roadmap out of lockdown, teamed with Rishi Sunak’s positive comments from this week’s budget.

The South African rand (ZAR) which remains sensitive to US economic movements, appears to have weakened following concerns for the passing of Biden’s USD 1.9 trillion coronavirus stimulus bill.

Although the covid infection rate in South Africa appears to have plateaued, the shift in sentiment has weakened ZAR. Despite this, choppy trade action is expected to ensue amid ongoing uncertainty which could give way to a sustained advance for the South African rand (ZAR).