Pound to Euro Exchange Rate Sheds Gains on Brexit Fears and EU Optimism
Despite an attempt to advance on UK coronavirus and Brexit hopes at the beginning of the week, the Pound Sterling to Euro (GBP/EUR) exchange rate has been unable to hold its ground. Following political developments over the past day, the pair has plunged.
After last week’s tumble from 1.1175 to 1.0999, GBP/EUR looked like it could be recovering. Yesterday saw GBP/EUR rebound to above the level of 1.10, around half of last week’s losses.
However, as the day drew on GBP/EUR slipped again as investors digested EU fiscal policy news. Then, this morning, GBP/EUR slipped even lower. GBP/EUR currently trends nearer the week’s opening levels.
The Pound (GBP) has seen fresh shock this morning. If there is any truth to speculation that a UK-EU trade deal could be abandoned, the Pound outlook may worsen even further.
Pound (GBP) Exchange Rates Slump on Fears UK Could Give Up on UK-EU Deal
Yesterday saw the Pound advancing against many major rivals. It was climbing on hopes that a coronavirus vaccine produced in Britain could be quickly spread across the nation.
Hopes for progress on Brexit negotiations had also been supporting the Pound lately. However, fresh headlines today have undermined Brexit optimism and caused fresh market jitters.
Reports are coming in that the UK government is close to abandoning hope on reaching a post-Brexit deal on UK-EU trade. The report comes from The Daily Telegraph.
A British source reportedly said:
‘There is a chance of a deal, but it will be a basic deal, not a phenomenal deal. We should know by mid-August whether there’s any chance it will happen.
It all depends on whether the EU wants to step up negotiations over the summer. If it doesn’t, then the Government’s view is that it’s not interested.’
Hopes for a soft Brexit continue to fade, keeping the Pound outlook even gloomier.
Euro (EUR) Exchange Rates Solid as Markets Digest EU Recovery Fund
While the Euro (EUR) saw mixed movement yesterday, news that an EU Recovery Fund had been agreed was a solid positive overall.
Some analysts noted that as the fund was expected to be agreed eventually it had already been largely priced into the Euro.
However the shared currency did also see something of a late reaction since last night. Fresh weakness in its rivals, like the Pound and US Dollar (USD), also added to the Euro’s appeal.
According to Joseph Trevisana, Senior Analyst at FXStreet:
‘It’s an important fact they finally got around to doing it, they got everybody on board with it. It’s less than I certainly thought they would do so its effect on the euro is going to be limited,’
Pound to Euro (GBP/EUR) Exchange Rate May Have Further to Fall
The Pound has already seen significant losses on coronavirus and Brexit fears in recent months.
However, the Pound to Euro (GBP/EUR) exchange rate could be in for even deeper losses if Britain’s Brexit fears continue to worsen.
If there are signs that there is validity to the concerns that Brexit negotiations could collapse, the Pound may fall further. If Britain gives up on UK-EU talks it could lead to a worst-case scenario no-deal outcome at the end of 2020.
As a result of intensifying Brexit fears, upcoming UK data may only have a limited impact on currency movement.
The Confederation of British Industry (CBI) will publish UK industry data tomorrow. UK and Eurozone PMI projections from July will follow on Friday.
The Pound to Euro (GBP/EUR) exchange rate may be kept under even more pressure if upcoming Eurozone PMI beats forecasts and buoys the shared currency.