GBP to EUR Exchange Rate Jumps as Cross-Party Brexit Talks Bolster Hopes for Softer Outcome

April 3, 2019 - Written by James Fuller

STORY LINK GBP to EUR Exchange Rate Jumps as Cross-Party Brexit Talks Bolster Hopes for Softer Outcome

After continued failure to point towards a single major solution for the Brexit process, and with the EU’s next formal Brexit date still set for next Friday, the British Pound to Euro (GBP/EUR) exchange rate jumped amid fresh hopes for some kind of cross-party compromise to be made to resolve the long-standing Brexit deadlock.

Despite last week’s notable GBP/EUR tumble on Brexit fears, that took the pair from 1.1688 to 1.1623, GBP/EUR has largely recovered all of last week’s losses as of Wednesday morning. Since Monday evening, hopes for a softer Brexit to be possible have led to jumps in Pound demand, and the latest news has taken GBP/EUR to trend near the level of 1.1732 at the time of writing.

This put GBP/EUR just half a cent below last week’s yearly high of 1.1782.

Hopes rose that the deadlock on Brexit could be broken through thanks to fresh talks between Prime Minister Theresa May and opposition Leader Jeremy Corbyn.

This news also bolstered market hopes of a softer Brexit, as well as doused concerns that a general election was becoming more likely.

GBP Exchange Rates Jump on Hopes for Softer Brexit

Brexit fears briefly worsened yesterday, as the latest attempt for UK Parliament to reach a solution with its ‘indicative votes’ process failed, and every proposed amendment was once again blocked.

It worsened market fears that Britain could crash out of the EU with no deal next Friday, as Britain continuously failed to reach any kind of solution to what sort of Brexit it wanted.

The EU has indicated that it is willing to delay the Brexit process again, but only if the UK has a solid reason for doing so.

This weakened the Pound amid concerns that Britain may be forced into a fresh general election as a way to break the deadlock.

Overnight though, demand for the Pound rose as Prime Minister Theresa May announced plans to hold talks with the leader of the opposition Labour Party, Jeremy Corbyn.

May hopes that talks with Corbyn could lead to changes that significantly bolster the appeal of her Brexit bill among opponents, and help it to pass through Parliament.

Analysts believe that the Prime Minister is willing to make compromises, and this is also being perceived as lessening the chances of a general election. According to Jim Reid from Deutsche Bank:

‘She is seemingly now prepared to back down on her prior red lines and also prepared to let Parliament decide on the outcome if she and Mr Corbyn can’t. Recall that the customs union option came within 3 votes of passage on Monday.’

EUR Exchange Rates Avoid Deeper Losses as Eurozone Services Rebound

The Eurozone’s manufacturing sector performed even worse than forecast last month, and caused deeper concerns that the Eurozone’s economic outlook was being considerably impacted by slowing global growth.

However, today’s Eurozone services and composite PMI stats from Markit generally beat expectations, as the Eurozone’s services sector saw its best month for growth since November.

The services projection already beat expectations, but the final print was even stronger than projected.

This data helped the Euro to avoid further losses versus a strengthening Pound this morning, but the Euro’s strength was still limited as the report indicated that the bloc’s economic activity was still weak overall.

According to Chris Williamson, Chief Business Economist at Markit:

‘Only at the turn of the year, when business was hit by headwinds such as widespread ‘yellow vest’ protests in France and an auto sector struggling with new emissions regulations, has growth been slower over the past four years. The rebound from these temporary headwinds has clearly been disappointing and is already losing momentum, led by a deepening downturn in manufacturing.’

GBP/EUR Exchange Rate Forecast: How Will Brexit Talks Unfold?

There is just around a week and a half until the UK is set to formally leave the EU under the EU’s current Brexit date of 12th April.

As a result, investors are eagerly hoping that Prime Minister Theresa May and opposition leader Jeremy Corbyn will quickly reach some kind of compromise that could bolster the chances of a soft Brexit passing through Parliament.

Any developments in cross-party talks have the potential to drive Pound movement in the coming sessions. The Pound is likely to climb if soft Brexit hopes rise, but if the talks fail and general election fears rise the Pound could slump again.

With the fate of Brexit still a market-dominating uncertainty, the Pound is likely to take point in GBP/EUR movement, though some upcoming Eurozone data could influence Euro movement.

German factory orders and construction data could influence the Pound to Euro exchange rate tomorrow, and German industrial production could drive the pair on Friday.

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TAGS: Pound Euro Forecasts