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Pound to Euro (GBP/EUR) Exchange Rate Sinks as Bank of England Says Britain’s Economic Outlook is ‘Unusually Uncertain’

September 17, 2020 - Written by John Cameron

GBP/EUR Exchange Rate Falls on Dovish BoE Statement
The Pound to Euro (GBP/EUR) exchange rate fell by -0.5% today after the Bank of England (BoE) held interest rates at 0.1%. The pairing is currently trading around €1.09.

However, the Bank also commented in a dovish statement that Britain’s economic outlook remained ‘unusually uncertain’. As a result, this dragged down Sterling as the nation’s economic situation continues to darken on fears of a hard Brexit later this year.

The BoE said:

‘Indicators of global activity have been broadly in line with the Committee’s expectations at the time of the August MPC meeting.’

‘The sterling exchange rate index has fallen by around 2%, in part reflecting recent Brexit developments.’

However, GBP investors were encouraged by the BoE’s statement that the UK’s economic data had been stronger-than-expected.

The Bank said:

‘Recent domestic economic data have been a little stronger than the Committee expected at the time of the August Report, although, given the risks, it is unclear how informative they are about how the economy will perform further out.’

Meanwhile, anxieties over Brexit and a possible US-UK trade deal have weighed on confidence in Sterling today. This follows the US Democratic Presidential candidate, Joe Biden, warned London not to breach the Brexit Withdrawal Agreement.

Any further signs of tensions mounting over Brexit would prove GBP-negative.

Euro (EUR) Rises as Eurozone’s Construction Output Improves in July

The Euro (EUR) rose against Sterling today after the Eurozone’s Construction Output report for July improved on consensus, falling by just -3.8% instead of the consensus of -15.6%.

Eurostat said in its report:

‘In July 2020, a month marked by some relaxation of COVID-19 containment measures in many Member States, the seasonally adjusted production in the construction sector rose by 0.2% in the euro area and fell by 0.1% in the EU, compared with June 2020, according to first estimates.’

In other Eurozone economic news, today also saw the release of the Consumer Price Index, which fell to a worse-than-expected -0.6%.

Nevertheless, the Euro’s gains have been caped by ongoing concerns over Europe’s coronavirus situation, which appears to be making a resurgence. As a result, this could dent hopes for the Eurozone’s economic recovery in the months ahead.

GBP/EUR Forecast: Could No-Deal Brexit Fears Further Weigh on Sterling?

Pound (GBP) investors will be looking ahead to tomorrow’s release of the UK’s Retail Sales report for August. Any improvement in the nation’s retail sector would prove GBP-positive.

Euro (EUR) traders, meanwhile, will be analysing tomorrow’s release of Germany’s PPI report for August. If the outlook for the Eurozone’s powerhouse economy improves, then we could see the single currency head higher against the Pound.

The GBP/EUR exchange rate will continue to be driven by Brexit news. As a result, we could see Sterling head lower if a no-deal Brexit appears more likely.

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