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Pound-to-Euro Exchange Rate Avoids Brexit Losses as Euro-zone Data Continues to Disappoint

December 18, 2018 - Written by Toni Johnson

The pound to euro exchange rates are seen marginally lower as markets enter the mid-week session.

£1 is currently quotes at €1.11139.

Despite concerns that a ‘no-deal Brexit’ is becoming more likely than the possibility of a second EU referendum, the British Pound to Euro (GBP/EUR) exchange rate avoided losses on Tuesday. The latest Eurozone data continued to indicate that the currency bloc was slowing, keeping pressure on the Euro.

Brexit fears are keeping Sterling from advancing too much however, as GBP/EUR continues to trend lower than last week’s opening levels of 1.1176. At the time of writing, GBP/EUR was trending near this week’s opening levels of 1.1133 as the pair fluctuates and both currencies weaken. GBP/EUR has been able to hold above last week’s three month low of 1.1010.

GBP Exchange Rate Strength Mixed as UK Government Announces No-Deal Brexit Plans Will be Implemented

Fears that Brexit process could end with a worst case scenario ‘no-deal Brexit’ kept pressure on the Pound on Tuesday, making it difficult for the British currency to sustain any gains, even against the weakened Euro.

On Tuesday, the UK government indicated that it would ramp up plans to prepare Britain for a possible ‘no-deal Brexit’, and the EU has indicated it will not work towards a ‘managed no-deal Brexit’ either.

According to a spokesperson for UK Prime Minister Theresa May on Tuesday:

‘Cabinet agreed that, with just over three months until our exit from the European Union, we have now reached the point where we need to ramp up these preparations. This means we will now set in motion the remaining elements of our no-deal plans,’

It followed Monday’s news that UK Prime Minister Theresa May had announced that the UK Parliament vote on her negotiated UK-EU Brexit deal would be held during the week beginning the 14th of January 2019.

The UK Parliament vote on Brexit being delayed until January made investors anxious that time was running out for UK MPs to agree to how the Brexit process should unfold.

However, analysts are hopeful that some time to think as well as warnings that the EU will not support any kind of ‘no-deal Brexit’ will ultimately help to make UK Prime Minister May’s deal more appealing to UK MPs. According to analysts at MUFG:

‘This should prove somewhat positive for PM May’s position as it serves to worsen the spectre of a bad No Deal scenario, which makes her plan look relatively more attractive,’

Ultimately though, this speculation did little to boost the Pound or offset ‘no-deal Brexit’ fears.

EUR Exchange Rates Struggle as Eurozone Data Continues to Fall Short

Last week saw the European Central Bank (ECB) take a more dovish tone on its Eurozone economic outlook, with the bank cutting its Eurozone growth forecasts for 2018 and 2019, as well as predicting slower Eurozone inflation in the coming months.

The bank’s caution was seemingly justified, as the Markit’s December PMIs for the Eurozone fell short of expectations and with the worst set of prints in around four years.

It was followed on Monday by news that the Eurozone’s November inflation rate was slower than expected, and then on Tuesday as Germany’s latest business confidence data from Ifo fell short of expectations.

Ifo’s business climate print fell from 102 to 101 rather than the expected 101.8. Expectations fell from 98.7 to 97.3, and current conditions slipped from 105.5 to 104.7.

Despite this, Ifo economists believe there is still no likelihood of a German recession in sight. This kept the Euro from weakening too much on Tuesday.

GBP/EUR Exchange Rate Forecast: Eurozone Construction and Federal Reserve Decision Ahead

UK inflation data is unlikely to be particularly influential when it comes in during Wednesday’s European session, with Pound investors remaining focused on Brexit developments and UK politics.

Instead, the Wednesday news most likely to influence the Pound to Euro exchange rate will be the day’s Eurozone data, as well as the Federal Reserve’s anticipated December policy decision.

The Federal Reserve is expected to hike US interest rates, but markets will be focused more on the bank’s 2019 monetary policy outlook.

If the bank is more cautious than expected, lower Federal Reserve interest rate hike bets would lead to stronger demand for the Euro.

The Euro is negatively correlated to its rival the US Dollar, so it often gains when the US Dollar weakens.

Of course, any surprising developments in UK or Eurozone politics, as well as Brexit news, could also influence the Pound to Euro exchange rate tomorrow.
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