Euro rises as Brexit row batters punch drunk pound

London (AFP) – A punch drunk pound plunged on Brexit woes and a buoyant euro soared Thursday as ECB head Christine Lagarde forecast the eurozone’s coronavirus downturn would be less severe than feared.

As major stock markets marked time, Lagarde acknowledged a recent spike in coronavirus cases was causing “headwinds” for the recovery whose pace remained uncertain, but added data pointed to a “strong rebound” in the third quarter.

According to the European Central Bank’s latest forecasts, the eurozone economy is likely to shrink by 8.0 percent this year, compared with an earlier projection of -8.7 percent.

Lagarde told reporters the rise of the euro had been discussed — though it was absent from the policy statement — and was “something to be monitored carefully.”

She said the ECB was not targeting a euro level.

But she added: “We are monitoring carefully the impact of our currency on our medium-term inflation level.”

Her comments did not stop the single currency hitting $1.19 against the US dollar, close to the September 1 two-year high of $1.20.

It rose still further against drooping sterling, hitting 92.33 pence — a six-month low for the British unit, which has lost more than three percent in the past week against both the euro and the greenback after Britain decided to override elements of its EU withdrawal bill, prompting a furious response from an aghast Brussels.

“Sterling took a bit of a kicking as the mood music around this week’s Brexit talks took a decided turn for the worse,” was the verdict of Markets.com chief markets analyst Neil Wilson.

Regarding the euro, “the absence of any mention of the exchange rate in the policy statement confirms our view that the ECB is not too worried about the currency at present,” said Andrew Kenningham, Chief Europe Economist for Capital Economics.

“It is clear the ECB are not going to try and devalue the euro, probably because they don’t want to take on the Fed in an easing fight. Sterling remains under pressure due to uncertainty surrounding the UK-EU trade negotiations,” added David Madden of CMC Markets.

Boris Johnson’s government provoked EU ire after it introduced legislation that intentionally breaches its obligations regarding Northern Ireland in the withdrawal treaty.

The move has fanned fears of no trade agreement being reached, dealing a double-whammy to a British economy already ravaged by virus lockdowns.

In the US meanwhile, the Dow Jones Industrial Average struggled to make headway along with major European markets, dipping 0.3 percent two hours into the day session.

That followed mixed US labour data and continued dim prospects for additional stimulus spending from Washington.

Elsewhere, hopes for a coronavirus vaccine won a boost following a report in the Financial Times that the trial being conducted by AstraZeneca and the University of Oxford could resume early next week, ending a pause after a volunteer developed an unexplained illness.

The drug is a frontrunner in the global race for a vaccine.

Shares in AstraZeneca limited losses to 0.6 percent.

– Key figures around 1600 GMT –

New York – Dow: DOWN 0.3 percent at 27,848.15 points

London – FTSE 100: DOWN 0.2 percent at 6,013.32 (close)

Frankfurt – DAX 30: DOWN 0.2 percent at 13,208.89  (close)

Paris – CAC 40: DOWN 0.4 percent at 5,023.93 (close)

EURO STOXX 50: DOWN 0.3 percent at 3,315.74

Tokyo – Nikkei 225: UP 0.9 percent at 23,235.47 (close)

Hong Kong – Hang Seng: DOWN 0.6 percent at 24,313.54 (close)

Shanghai – Composite: DOWN 0.6 percent at 3,234.82 (close)

Pound/dollar: DOWN at $1.2863 from $1.3000 at 2040 GMT

Euro/pound: UP at 92.36 pence from 90.80 pence

Euro/dollar: UP at $1.1883 from $1.1805

Dollar/yen: UP at 106.20 yen from 106.12 yen

West Texas Intermediate: DOWN 0.8 percent at $37.79 per barrel

Brent North Sea crude: DOWN 0.9 percent at $40.43 per barrel