December 23, 2020 - Written by John Cameron
STORY LINK Brexit Deal Done: Pound Euro Exchange Rate Surges as Likely Brexit Deal Today
The Pound to Euro (GBP/EUR) exchange rate advanced by almost 1% on Wednesday PM as news broke that a no.10 source said a Brexit deal was "Possible but far from certain," adding that it could be ready by Wednesday evening.
GBP/EUR jumped by almost one percent on the day but has since pulled back to trade around 1.1056.
Reports earlier in the day had suggested that the UK and EU are close to clinching a post-Brexit trade deal, but that the failure to reach an agreement in regards to fishing rights remains a key stumbling block.
An EU official said:
‘Progress has been made. Most issues are preliminarily closed or close to being agreed. However, differences on fisheries remain difficult to bridge. Unfortunately, the UK is not moving enough yet to clinch a fair deal on fisheries.’
‘EU negotiators are in a last push now to make progress and to clinch a deal acceptable for both sides. The EU will not close its door to the UK and remains ready to negotiate even beyond 1 January.’
Boris Johnson offered a major concession to the EU earlier in the week, slashing his demand that EU vessels reduce their catch in UK waters from 60% to 35%, just shy of the 25% being proposed by the EU, but strong opposition from France and Denmark has seen the EU reject this offer.
However these still seems to be some optimism that a deal could be struck by the end of the day, something which appears to be underpinning the Pound this morning.
Euro (EUR) Firms on USD Weakness
At the same time, the Euro (EUR) is finding support this morning, amidst broad weakness in the US Dollar (USD).
Due to the negative corelation in the world’s most traded currency pairing, a fall in the US Dollar will generally benefit the single currency.
This uptick in the Euro has also been supported by a more upbeat market mood, as the panic from the start of the week continues to fade.
However, the upside in the Euro appeared capped as EUR investors remain nervous over the new, more infectious variant of the coronavirus, which has already been detected on the continent.
GBP/EUR Exchange Rate Forecast: More Brexit Volatility Ahead?
Looking ahead, it seems safe to assume that Brexit will continue to act as the main catalyst of movement in the Pound to Euro (GBP/EUR) exchange rate in the coming days.
As talks come down to the wire, GBP investors seem cautiously optimistic that the two sides will manage to reach some kind of agreement before the Brexit transition period concludes at the end of 2020.
However, should a deal not be finalised by today then we could see Sterling face some headwinds, amidst concerns that the time needed for legal scrubbing, translation and scrutiny by the governments, will inevitably see a period after January 1 in which the UK’s trade relationship with the EU will operate under a no-deal.
Meanwhile, in the absence of any notable Eurozone data releases through to the end of 2020, EUR investors are likely to focus on coronavirus developments for any signs the new strain is starting to be detected in any real numbers on the continent.
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TAGS: Pound Euro Forecasts