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GBP to EUR Exchange Rate Slumps from 4-Month-Best on Doubts for Imminent UK-EU Brexit Deal

October 14, 2019 - Written by Tim Boyer

The Pound continues to see highly mixed and volatile movement as the Brexit saga continues to blanket the UK outlook with uncertainties, and so following last week’s British Pound to Euro (GBP/EUR) exchange rate surge the pair is falling again today so far. The Pound’s losses are not as sharp as last week’s gains, but they are still highly noteworthy and they come despite a lack of strong market demand for the Euro.

Last week was an especially volatile week for GBP/EUR, as the pair hit significant lows and highs due to its wide movements. After opening the week at the level of 1.1233, GBP/EUR tumbled to a monthly low of 1.1091 before a particularly sharp rebound of over three cents towards the end of the week.

On Friday, GBP/EUR touched on its best levels in almost five months, 1.1493, before closing the week at the level of 1.1462.

Since markets opened this week though, GBP/EUR has been sliding back from its best levels and currently trends near the level of 1.1385.

GBP Exchange Rates Fall Back as Brexit Hopes Face Reality Check

Last week saw the Pound face one of its most volatile and sharp movements of recent months, as hopes plunged and then rose again that a new UK-EU Brexit deal was possible.

Sterling was weaker earlier in the week when the UK government indicated it may give up on talks.

However, on Thursday UK Prime Minister Boris Johnson and Ireland Leader Leo Varadkar held talks near Birkenhead, England. Both emerged from the talks seemingly positive that they could see a path to some kind of deal.

Sterling rocketed in response to the news, hitting multi-month highs against many major rivals.

Still, markets may have overdone it a little. The EU Summit which is the best time for a deal to be reached will be held towards the end of this week, despite officials saying that a lot of work still needed to be done.

On top of this, EU diplomats indicated today that the optimism seen last week may have been premature. According to one EU diplomat:

‘Such a hybrid customs territory like the British are proposing for Northern Ireland does not work anywhere in the world, it seems,

With this kind of system, with two sets of rules for the same goods crossing the same border, there is more possibility for fraud and it’s extremely complicated to distinguish between goods heading for Northern Ireland, or further to Ireland and the single market.’

Fresh doubts that the UK and EU could reach a deal left the Pound tumbling today.

EUR Exchange Rates Benefit from GBP Weakness despite Mixed Support

Investors have had little reason to buy the Euro much in recent weeks, as Eurozone data continues to point towards lasting weakness in the Eurozone economic outlook, as well as a likely German recession.

However, despite this the shared currency has seen some resilience thanks to the weakness of major rival currencies like the Pound and US Dollar (USD).

The Pound’s recent major movements on Brexit developments have of course caused a lot of GBP/EUR movement, but weakness in the US Dollar (USD), as the Euro’s biggest rival, has benefitted the Euro as well.

The Euro’s appeal remained mixed today, due to numerous factors. The day’s German wholesale prices and Eurozone industrial production stats beat expectations in monthly prints but saw deeper than expected contractions year-on-year.

Overall though, the Euro continued to benefit from weakness in the Pound.

GBP/EUR Exchange Rate Forecast: Brexit Deal This Week Seen as Unlikely

With just half a month to go until the current formal Brexit date of the 31st of October, the key EU Summit that was perceived as the last realistic chance to secure a Brexit deal this month has quickly approached.

The summit will take place towards the end of the week, and analysts believe it is unlikely for a deal to be meted out in time to be confirmed this week.

Depending on how negotiations go though, they could influence bets of a Brexit delay being followed by a deal. If hopes of a deal being within reach remain high, the Pound’s performance will be more resilient.

On the other hand though, if UK-EU relations worsen again and talks are seen as failing, the Pound could quickly shed more of last week’s advances.

Brexit is in focus for GBP/EUR, but upcoming Eurozone data could bolster Euro support and make GBP/EUR losses more likely if they impress.

French inflation and ZEW’s economic data could influence the Euro tomorrow, and Eurozone inflation stats could cause some Pound to Euro exchange rate movement on Wednesday.
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