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Major Forex Markets Struggle Amid Continuing Uncertainty

Major Forex Markets Struggle Amid Continuing Uncertainty

Published: June 23rd, 2020

 Due to the continued market uncertainty, the major Forex market pairs slumped in Europe on Friday, June 19. The market situation in the world’s biggest economic union has compelled its leaders to commence discussions on the viable stimulus package. While things are thick in Europe, the other side of the Atlantic is nothing but a breezy Sunday morning, least for the moment.

The significant forex market pairs fell in Europe on Friday, June 19, because of the raging market uncertainty. Interestingly, the drop is not a result of the market’s reflection on data; rather, the resurgent coronavirus cases in the Eurozone, most notably, Germany.

Both GBP/USD and EUR/USD pairs struggled to hang on to their positions. The sharp drop in these currency pairs and the dismal performance of the stock markets cause grave concern. The European Union leaders met later in the day to discuss additional stimulus plans.

The Currency Dips Causing Negative Sentiment in the Eurozone

The Euro closed Friday, June 19 trading session at $1.12, a slight recovery from the figures of the previous day. Meanwhile, the Sterling Pound dipped below $1.24. The resurgence of coronavirus cases in Europe is causing worries and giving out negative market sentiments. Thousands in Germany are quarantined following a breakdown.

The pound’s woes, however, go a lot deeper than the pandemic. The poor performance is also possible because of the remarks by Andrew Bailey, the governor of the Bank of England (BoE). Bailey told reporters via a press release that his bank was “actively considering” introducing negative interest rates.

The governor’s sentiments are not unpopular among traders who specialize in the cable. The movement away from the currency pair is a result of the governor’s remarks.

A Compromise of Fiscal Plans

While the Forex market traders are migrating from the GBP/USD pair, the European Union's economic leadership held a video conference. They discussed a further stimulus package for the block worth some €750 billion (Approx. $840 billion). The markets are hoping that the leaders can reach a deal that will save the region from the severest economic meltdown it has experienced since its formation.

Though the discussion appears smoother now than it has been in the past, Charles Michel, the President of the European Council, still thinks that a lot more effort is required in the negotiations. Another meeting is scheduled for mid-July, where the discussion will discuss the coronavirus recovery measures based on the proposed plan that the block’s leadership refers to as the “Next Generation EU.”

Many countries are disagreeing on how to apportion the financial package. However, preliminary reports from the meeting indicate that the block is keen on coronavirus bonds. According to the president of the commission, Ursula von der Leyen, the commission wants to level the playing field.

Spain and Italy are the two most severely affected countries in the block with almost 495,000 cases by the end of the third week of June. The two countries had earlier impressed on their northern European counterparts to pass the coronavirus bonds so the two countries can get adequate funds to jumpstart their economies.

According to Ursula, the commission will put more effort into stopping the widening economic divergence among member states. She says that doing so is now a priority because it strengthens the single economy.

Ambitious

Ursula said that the leaders agreed with one voice to undertake ambitious response measures since the severity of the crisis makes such reforms and investment justifiable. She added that leaders are committed to reaching an agreement before the summer break. However, she was quick to caution that the mood does not necessarily mean that leaders have reached a consensus.

The EU president said that the European Council's plan to help member states survive the effects of the coronavirus pandemic is yet to be welcomed by every leader. However, she pointed out that the situation around the negotiations is way cordial now.

The German politician pointed out that the differences lie in the nitty-gritty. According to her, the issues that remain unresolved are the size of the stimulus, how the funds will be disbursed, and the ration of the loans to grants in the entire recovery scheme.

Ursula has proposed an elaborate long-term budget for the block stretching from 2021 to 2027. This financial estimate represents 1.1% of Europe's GDP after the U.K. completes the exit process and an interim supplement of €750 billion for combating the harsh effects of the virus.

The entire stimulus represents a colossal €1.85 trillion (Approx. $2.1 trillion) for the Eurozone's struggling economies.

America Does Not Share in Europe’s Pains

The U.S. and Europe are close political and economic allies whose aspects of life almost mirror. However, the sharp dives in the region’s currencies did not affect the greenback or the stocks and equities in the U.S.

The U.S. markets readied for Friday, June 19’s trading actively, and the Dow Jones Industrial Average gained 300 points. These results make the American market the best performing having finished four of the past five weeks on a positive note.

The impressive performance was inspired by the news that Beijing has agreed to increase the purchase of U.S. farm products.

Despite the excellent account, concerns linger because the jobs data went past the expected 1.5 million. Besides, attention has shifted to the Department of Health and Human Services after 21 states reported a spike in coronavirus cases. The markets are upbeat, but the fear that the increase in cases could signal a second wave of infections is too real to wish away.

Final Thoughts

The uncertainty in Europe has affected the block's unitary currency and the Sterling Pound. The spike compounds the volatility in cases of coronavirus across the continent and Germany in particular. Fears and negative market sentiments may spread to the stock markets in the coming days. However, the block's leadership met to work out the detail of an economic bailout that will see the total stimulus increase to €2 trillion. The final details may wait until mid-July when the European Council meets. It is interesting to see how the two currencies and the European stock indices will behave in the meantime.