Pound's coronavirus surge against euro will bring EU to heel over Brexit say economists

Pound sterling will continue to surge against the euro as long as the European Union struggles to contain the economic crisis in Italy, according to leading experts. Economists have labelled the British pound sterling as the “winner” in the economic turmoil triggered by Europe’s coronavirus crisis, which has left the future of the entire bloc in doubt. Standard Bank even forecast that sterling will strengthen to 80 pence per euro – a level not reached since the Brexit vote to leave the European Union – and it could go higher.

The news sent shockwaves across the EU after suggestions the jump in the pound against the euro could force major concessions from Brussels in Brexit talks.

Standard Bank said financial markets’ optimism for the pound could see the EU’s Brexit negotiators concede “more favourable terms” to the UK following the pandemic.

The bank’s head of foreign-exchange strategy Steven Barrow said: “The stigma of being associated with the EU – and the eurozone in particular – will only increase as a result of the coronavirus crisis.

“We’ve long had our sights on a return to 0.80 over the coming year for euro-sterling (a sterling rise of nearly 10 percent) but now we are starting to think that this might be a bit too conservative.”

JUST IN: Pound to euro exchange rate: Sterling surges to one-month high

Christian Nolting, global chief investment officer at Deutsche Bank Wealth Management, warned that eurozone will continue to sink in economic markets if the EU struggles to find a “cohesive answer” to the fallout.

Read More   FMCG companies wake up to a million Indias

He told Bloomberg: “The eurozone has struggled with discussions on Italy, so far not using ESM money, and you see the spread of Italy bonds widening again in the last two days.

“Sterling could be a winner but only if the eurozone continues to struggle to find a solution on Italy.”

The drop in the euro follows news that Italy’s ruling coalition remains divided over whether to use the EU bailout fund to help the country’s battered economy.

Kit Juckes, a strategist at Societe Generale, warned that the £500bn bailout “still isn’t big enough”.

He told Bloomberg: “I’d still rather be long pound-dollar.”

On Wednesday, Brexit discussions restarted after the UK and EU chief negotiators agreed on a schedule for their next negotiating rounds. 

The two sides will resume post-Brexit talks next week, where they will confront entrenched divisions on trade and fishing rights over video link.


Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.