The British pound is down against the euro on Thursday with the single currency benefitting from increased scope for fiscal stimulus in Germany while Sterling was under pressure after the UK government indicated it would walk away from EU trade talks in June if not enough progress had been made.
GBP/EUR was lower by 78 pips (-0.70%) at 1.1772 with a daily price range of 1.175 to 1.186 as of 1.30pm GMT. The currency pair fell to 3-week lows before finding support at 1.175. The weakness comes after numerous failed attempts this week to break 1.20. The exchange rate is now -1.69% on the week.
The UK released a 30-page outlining its priorities for trade talks with the European Union on Thursday. The line that send the pound tumbling versus the euro was as follows: “The UK will rely on World Trade Organisation rules under an arrangement with the EU similar to Australia’s if progress on a comprehensive deal cannot be made.” The general crux of the message was another line in the document that said the “UK will not trade away its sovereignty”.
German newspaper Handelsblatt has reported today that the German government is considering a stimulus program in case the economy is hit by the coronavirus. The euro moved higher on the news, adding to weekly gains. Higher government spending, at least in the short term should increase economic growth, reducing the need for lower interest rates.
On Tuesday it was reported that German finance minister Olaf Scholz would suspend the so-called ‘debt break’ in the German constitution that limits the amount of debt that can be taken on by the government. The purpose would be for central government to take on the debt of some of the more indebted German municipalities. There is still some conditionality attached to the reports, whereby it would seem the German government is waiting for the economy to worsen before increasing spending. Late last year it was reported the German government could have a budget deficit in the instance there was an ‘emergency’.