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GBP to EUR Exchange Rate Struggles to Hold its Ground as Boris Johnson’s Brexit Plans Fail to Impress

October 2, 2019 - Written by Tim Boyer

Despite a lack of strong Eurozone data in recent sessions and continued concerns regarding a possible German recession and slowing Eurozone growth, the Euro has been fairly resilient today due to weakness in rivals, and the British Pound to Euro (GBP/EUR) exchange rate has trended lower.

Following last week’s solid GBP/EUR drop from 1.1317 to 1.1233, GBP/EUR has seen more mixed movement this week so far.

After attempting to climb at the beginning of the week, GBP/EUR has slipped again and at the time of writing today was trending near the level of 1.1220. This put it just above yesterday’s half month low of 1.1196.

If there are no fresh reasons to support the Pound in the coming sessions, and especially if tomorrow’s upcoming key Eurozone data impresses investors, GBP/EYR may be in for another week of losses.

GBP Exchange Rates under Pressure as Boris Johnson’s Brexit Proposals Fail to Impress

The strong performance the Pound saw at the beginning of the week appears to have very much run out of steam, since yesterday’s rise in concerns that the EU would not accept UK Prime Minister Boris Johnson’s new Brexit proposals only worsened today.

Speculation rose that Johnson’s proposals for a solution to the controversial Irish backstop issue would not be acceptable to EU negotiators.

The backstop is a mechanism that is important to the EU’s side of the Brexit deal, as it ensures that Ireland and Northern Ireland are able to maintain a soft border.

Ultimately, while Boris Johnson held a speech on the government’s Brexit plans today, analysts believed his alternative offers would not impress EU negotiators despite Johnson’s claims that it was either this or a no-deal Brexit.

Still, despite the government’s hard-line stances keeping no-deal Brexit fears alive, markets remain hopeful that UK Parliament can still prevent a no-deal outcome.

According to Jordan Rochester, Strategist at Nomura London:

‘We learned nothing new,

But hope is a powerful thing, so for the time being Johnson may make all the noise in the world but he doesn’t have the majority in parliament and no ability to have a no-deal or an election and the power is still in the hands of parliament.’

EUR Exchange Rates Benefit from Weakness in Major Rivals

The Euro hasn’t been particularly appealing this week either, but the shared currency has still been able to sustain some gains against the Pound despite its lack of support.

This week’s Eurozone data continues to point towards continued slowdown in the bloc’s economy, and fears persist that Germany has already fallen into recession.

So, the Euro’s gains this week are more due to other factors in the global market than any support from Eurozone news.

Among the Euro’s biggest rival currencies are the Pound and the US Dollar (USD), which have both been weaker this week and this has been a big part of the Euro’s surprising resilience.

The US Dollar (USD) in particular has a negative correlation with the Euro, and has seen weaker performance since a surprising contraction in US manufacturing reported yesterday.

Still, the Euro remains unappealing overall, and yesterday’s news that German manufacturing was also seeing worryingly deep contractions certainly didn’t boost the shared currency’s appeal.

GBP/EUR Exchange Rate Forecast: Services PMI and Eurozone Retail Stats Ahead

Thursday could be one of the week’s most influential sessions in terms of UK and Eurozone data, with Markit’s services and composite PMIs for Britain and other EU nations due for publication, and the Eurozone’s August retail sales also due.

While Britain’s PMI report may be overshadowed by potential developments in UK politics and Brexit, the Eurozone’s data could cause some notable late-week movement in the Pound to Euro exchange rate if it surprises investors.

If German or Eurozone services PMIs are much better than forecast, it could bolster hopes that the bloc’s services sector is resilient despite the global manufacturing recession.

Similarly, hopes for the Eurozone’s economic resilience may rise if the bloc’s August retail sales stats beat forecasts, which could even soften European Central Bank (ECB) easing speculation.

These figures are likely to be the most influential news besides potential Brexit news until the end of the week, but Friday’s German construction PMI could also influence the Pound to Euro exchange rate.
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