The pound faced a difficult day yesterday after the Bank of England announced it would be boosting its bond-buying programme by £100billion. The measure was put in place to help Britain’s economy get through one of its worst economic downturns in 300 years. The beginning of the week began with a slight boost for sterling after some positive Brexit talks led Prime Minister Boris Johnson to reveal he was hopeful a deal would be put in place by the end of July.
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Mr Johnson said: “It is very clear what we need to achieve. I don’t think we’re that far apart, but what we need is a bit of oomph in the negotiations, and I was pleased that Ursula von der Leyen [and other EU officials] all agree … There is no reason why we shouldn’t get this done in July.”
It seems the EU will be the topic that closes the week too as the EU Council summit begins today.
Discussions on a coronavirus recovery package, budgets and Brexit are likely to take place.
This could boost the euro and see the pound drop later today.
The pound is currently trading at a rate of 1.1098 according to Bloomberg at the time of writing.
This is just below yesterday’s trading rate which was 1.1150.
Michael Brown, currency expert at Caxton FX spoke to Express.co.uk to share his exclusive insight on the current exchange rate.
He said: “Sterling fell to one-month lows against the euro yesterday, as the BoE expanded the size, but slowed the pace of asset purchases, interpreted by the market as an unwelcomingly hawkish sign.
“Today, attention will centre on the EU Council summit, though no breakthrough on the bloc’s recovery package is expected.”
Some researchers think that if the coronavirus crisis continues into next year then a European Bank Crash is “highly likely”.
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Research from EconPol Europe by Jézabel Couppey-Soubeyran, Erica Perego and Fabien Tripier looked at the problems the coronavirus crisis poses on banks.
The authors said: “The Covid-19 crisis is a serious test of the reforms undertaken in the wake of the 2007-2008 financial crisis.
“That led to reforms that were intended to prevent a systemic financial crisis or, failing that, to mitigate its consequences.
“The reality of systemic risk was one of the major lessons of the financial crisis.
“But we are now faced with the reality of a health risk that has been previously underestimated.
“On the scale of disasters, this health crisis is even more serious than a systemic financial crisis because of the way in which it simultaneously affects all economic activities at the global level.”
They also added that if banks keep offering support and bailing people out then all their cash reserves will run out.
They added: “If losses accumulate in the economy and financial markets, the erosion of banks’ capital will increase their insolvency risk.
“It will then be necessary to activate the resolution mechanism (SRM).
“After mobilisation of the creditors of the banking groups concerned for at least eight percent of the losses, the SRF could then be mobilised for approximately €40billion (its current allocation equal to 80 percent of €55billion).
“This, however, represents barely two percent of the capital of euro area banks.
“This amount would not be sufficient if several banking groups had to be recapitalised at the same time.”
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