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The Pound to Euro Exchange Rate: GBP/EUR Edges Higher as Dovish Draghi Outlines Threats to Eurozone

March 7, 2019 - Written by John Cameron

The Pound to Euro exchange rate edged higher today and with GBP to EUR currently trading around €1.1670 on the inter-bank market.

The Euro (EUR) fell considerably against most of its competitors today following the announcement from the European Central Bank today that it would cut its growth outlook from 1.7% to 1.1%.

The Governor of the ECB, Mario Draghi, struck a dovish tone today, saying:

‘The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment… The impact [of Italy’s technical recession and Brexit] is turning out to be somewhat longer-lasting, which suggests that the near-term growth outlook will be weaker than previously anticipated.’

EUR was further weakened by the release of the Eurozone’s year-on-year GDP figures for the fourth-quarter, which fell below expectation to 1.1%. However, the quarterly GDP figures remained steady at 0.2%.

Due to the weakened Euro, the Pound managed to climb on the Euro today following the publication of the UK Halifax house prices figures for February, which increased above consensus to 5.9%.

Many analysts remained gloomy, however, with Russel Galley, a Managing Director at Halifax, saying:

‘People are still facing challenges in raising a deposit which means we continue to expect subdued price growth for the time being. However, the number of sales in January was right on the five-year average… the overall resilience of the market is still evident.’

GBP/EUR Exchange Rate Rises despite Urgent Irish Backstop Deadline

The Pound, however, has struggled today following the EU announcing that the UK has 48 hours to remedy the Irish backstop issue.

Sterling traders have become increasingly jittery today as negotiations between Attorney General Geoffrey Cox and the EU’s Brexit Negotiator, Michel Barnier, have been apparently inconclusive over the last few days.

Cox, however, hit back at reports that discussions were unsuccessful and vague, saying:

‘I am surprised to hear the comments that have emerged over the last 48 hours that the proposals are not clear; they are as clear as day, and we are continuing to discuss them.’

With the imminent 12 March vote on Prime Minister Theresa May’s Brexit deal, this has caused some concern for Pound traders as fears mount that May’s deal may be rejected by the House of Commons if there is not forthcoming consensus on the important Irish backstop.

GBP/EUR Forecast: Pound Could Rise if Irish Backstop Issue is Resolved

Euro traders will be looking ahead to the publication of the German factory order figures for January tomorrow, which are expected to improve at 0.5% against December’s -1.6% - this could see the Euro recover against the Pound.

Tomorrow will also see Yves Mersch, a former Governor of the Central Bank of Luxembourg, deliver a speech, and with recent comments from the ECB, any dovish comments, however, would prove EUR-negative.

The GBP/EUR exchange rate will likely be driven by Brexit developments over the next few days, and most Pound traders will be watching Geoffrey Cox for any indications of a consensus emerging between the UK and the EU regarding the Irish backstop, and if there is a deal forthcoming, this could prove Pound-positive.

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