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Pound Euro (GBP/EUR) Exchange Rate Falls as Odds of No-Deal Brexit Appear to Rise

December 2, 2020 - Written by Frank Davies

Growing Fears of No-Deal Brexit Outcome Drove Pound Euro (GBP/EUR) Exchange Rate Lower

The Pound to Euro (GBP/EUR) exchange rate plunged on Wednesday in the wake of comments from chief EU negotiator Michel Barnier.

As Barnier acknowledged that three key issues continue to hold up talks, and that discussions between the UK and EU remain hanging in the balance, this left the Pound on a weaker footing.

Investors piled out of the Pound as fears of a no-deal scenario surged, with a failure to reach an agreement likely to put significant pressure on the UK economy.

This overshadowed news that the UK had approved the Pfizer/BioNTech Covid-19 vaccine, with the first vaccinations set to take place next week.

Although this development suggests a light at the end of the tunnel in the pandemic crisis this was not enough to offer the GBP/EUR exchange rate any degree of support at this stage.

German Retail Sales Recovery Shores up Euro Demand

The appeal of the Euro also improved thanks to a stronger-than-expected monthly rebound in German retail sales.

As sales growth rose 2.6% on the month in October this encouraged greater demand for the single currency, with confidence in the underlying resilience of the German economy growing.

If the latest Eurozone retail sales data can deliver a similar improvement on Thursday this could give EUR exchange rates an additional boost.

Stronger levels of consumer spending would help to offset some of the lingering concerns over the economic outlook, even with tighter Covid-19 restrictions looking set to constrain growth in the remainder of the year.

On the other hand, with the finalised November Eurozone services PMIs expected to confirm another negative month this could put the Euro under pressure.

Confirmation that the service sector continues to trail significantly below the manufacturing sector, delivering negative monthly growth, may offer the GBP/EUR exchange rate a rallying point.

Weak UK Services PMI and Brexit Fears to Weigh on GBP Exchange Rates

Support for the Pound may also remain limited in the days ahead, though, with the UK services PMI for November also looking set to confirm a sharp slowdown.

As the service sector remains the primary growth engine of the UK economy any deterioration in the PMI could weigh heavily on GBP exchange rates.

Although the initial reading already showed a major deterioration on the month the final reading could still put some pressure on the Pound.

Developments surrounding Brexit talks also look set to provoke further volatility for the GBP/EUR exchange rate.

Unless the two sides show signs of making progress towards a potential deal the fear of a no-deal scenario may well keep the Pound biased to the downside for some weeks to come.
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