December 6, 2017 - Written by Minesh Chaudhari
STORY LINK GBP to EUR Exchange Rate Continues to Fluctuate as Investors Await Brexit Developments
Due to a lack of impressive Eurozone ecostats in recent sessions, the British Pound to Euro exchange rate has been able to hold its ground. However, Sterling still remains highly volatile as investors are concerned about obstacles preventing progress in Brexit negotiations.
Despite all the Brexit news in recent sessions, the GBP/EUR exchange rate has largely fluctuated around the week’s opening levels. The pair has trended between highs of 1.1418 and lows of 1.1281 but generally trends closely to the week’s opening level of 1.1322.
GBP Volatile on Brexit Negotiation Anxiety
It seems like the Pound is unlikely to see major gains or losses until some of the uncertainty clouding over Brexit negotiations clears.
The British currency has seen wide fluctuations since Monday, when Northern Ireland’s DUP Party blocked an agreement on the terms of the Brexit divorce due to concerns that Northern Ireland may be treated differently to the rest of Britain.
The UK government has still not reached an agreement with the DUP Party on how to proceed regarding the Irish border.
UK Prime Minister Theresa May faced pressure domestically on Wednesday too. Reports suggested that hard-line Brexit supporters within the ruling Conservative Party were concerned that May’s Brexit would be too ‘soft’.
On top of this, UK Brexit Secretary David Davis spooked investors by stating that forecasts on how the Brexit process would affect Britain’s economic sectors had not been carried out.
All this as well as this week’s disappointing UK services PMIs have limited the Pound’s strength and caused volatility. However, markets remain optimistic that major progress on Brexit talks will be made soon and this is limiting Sterling weakness.
According to Richard Falkenhäll, foreign exchange strategist from SEB;
‘Time is running out but our base scenario remains that leaders will come up with a solution that satisfies EU-leaders on 14 December, moving negotiations to stage two. We continue to expect any signs of a breakthrough in negotiations between the parties to boost the GBP by decreasing the Brexit risk premium. In our view, the risk premium reflects the possibility that the UK will leave the EU without a deal in March 2019, a situation that would likely be extremely negative for the country’s growth outlook.
If a divorce deal is reached, clearing the way for trade negotiations to start later this month, then the risk premium should be considerably smaller than it is today, as the potential negative impact on the UK economy of the country’s withdrawal from the EU will have been much reduced.’
EUR Strength Limited by Underwhelming Retail Data
Despite Brexit concerns, the Euro has been unable to capitalise on Pound weakness in recent sessions amid a lack of fresh reasons to buy the shared currency, as well as some disappointing Eurozone data.
While the Eurozone’s economic outlook is strong and this has been the primary reason for Euro strength in recent months, Tuesday’s Eurozone retail sales results failed to meet expectations.
The Eurozone’s October retail sales results were forecast to worsen from 0.7% to -0.7%, but instead slumped from a revised 0.8% to -1.1%.
Meanwhile, the yearly figure was forecast to slow from 3.7% to 1.5%, but instead tumbled from a revised 4.0% to 0.4%.
Euro trade was generally unfazed by Markit’s final Eurozone services PMIs from November, which came in at 56.2 as expected.
GBP/EUR Forecast: Could A Brexit Agreement be Reached this Week?
With the Pound to Euro exchange rate still trending closely to the week’s opening levels, it could take some major developments in the Brexit negotiation outlook to influence the pair’s movement to shift.
UK Prime Minister Theresa May previously indicated she would meet with EU officials to attempt to secure a deal again before the end of the week.
However, there has not yet been strong indication that the UK has reached an agreement with Northern Ireland’s DUP Party on the issue of the Irish border.
Essentially, if a Brexit deal looks like it could be agreed by the end of the week, investors will hope for the second phase of Brexit talks to begin in the coming months and the Pound outlook would surge.
If the Irish border issue remains unsolved until next week, Pound investors will become anxious that a deal may not be reached before the EU summit on the 14th of December.
The Euro, on the other hand, could be influenced by Eurozone growth projections on Thursday.
If the Eurozone’s latest Q3 Gross Domestic Product (GDP) projections fail to meet expectations, the Euro could weaken and GBP/EUR could rise.
European Central Bank (ECB)
President Mario Draghi will also be holding a speech on Thursday which could influence GBP/EUR movement.
International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way,
ensuring you get the best exchange rates on your currency requirements.
TAGS: Pound Euro Forecasts