The Pound is currently trading at €1.19, its highest point against the Euro since February 2020. Over the last month the Euro has declined against other major currencies due to a range of factors, from the impact of Covid to central bank policy. The Euro is faring particularly badly against the dollar with one Euro now worth $1.12, down from $1.16 at the start of the month. Victoria Scholar, head of investment at Interactive Investor, said: “Rising US yields and rate expectations stateside combined with a deteriorating picture for Covid cases in Europe continue to punish the currency pair. Economic data from Europe’s largest economy is also painting a gloomy picture with Germany’s latest Ifo business climate falling for the fifth month in a row and this week’s factory data logging the lowest growth in 10 months.”
The Ifo index, which measures business confidence in the strength of the economy, now stands at its lowest level since February this year.
It found supply bottlenecks and the fourth wave of Covid in Europe to be the main challenges facing German companies.
Germany is currently considering whether to introduce a full lockdown with a decision expected today.
Its neighbour Austria has already introduced a full national lockdown despite protests.
Commenting on the figures Christopher Dembik, Head of Macro Analysis at Saxo Bank, said: “The worst is yet to come with the energy crunch intensifying and risk of lockdown.
“All of that on top of supply chain bottlenecks.
“We cannot exclude that German GDP will slow down significantly in Q4.
“In the event of a new lockdown, it could even cause a contraction of GDP.”
Lockdown fears are also impacting stock markets with airlines being particularly hit today.
IAG, Easyjet, Ryanair and Wizz Air all experienced falling share prices over fears of greater restrictions.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “Their descent comes amid warnings from the World Health Organisation that there could be an additional 700 thousand new deaths in the region, taking the total to 2.2 million by March.
“This has caused fresh turbulence for airline companies, which had glimpsed light through the clouds as bookings, especially on lucrative transatlantic routes were expected to bounce back in the Spring.
“But there are now concerns that surging infections and lockdowns will depress the confidence of the travelling public.”
Adding to the woes facing the Euro has been central bank policy with the European Central Bank (ECB) remaining persistently dismissive of any rise in interest rates.
Inflation in the Eurozone currently stands at more than double the ECB’s two percent target.
However, its president Christine Lagarde has said a rate hike is unlikely in 2022.
By contrast, the US Federal Reserve and the Bank of England have both been hinting at a more proactive response.
Speaking this week, Jonathan Haskel, an external member of the Bank of England’s Monetary Policy Committee, said if pressure continued on the labour market “the Bank Rate would have to rise.”
Meanwhile, in the US, the re-appointment of Jerome Powell as Chair of the Federal Reserve has heightened expectation of a rate hike.
Looking forward, Ms Scholar said: “Technical indicators point to a continued depreciation for the euro particularly against the US dollar, which is enjoying a bullish trajectory.”
She added that, if the Euro declines further, a break below $1.10 “could spur further selling and a move down towards lows not seen since the spring last year at the height of the pandemic.”