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Euro to Pound Sterling Exchange Rate Forecast: EU Referendum Approaches, ‘Brexit’ Fears Weigh on GBP

The Euro to Pound Sterling (EUR/GBP) exchange rate looks likely to be at the mercy of political news this week after last week’s increased ‘Brexit’ bets sent the Pound lower across the board and Sterling volatility hit a six-year high.

EUR/GBP Hits Highest Point since December 2014 Despite ECB Efforts

Despite the European Central Bank’s continued efforts to weaken the Euro earlier in the month, the Pound’s weakness was even more impressive as the EUR/GBP pair climbed to a lofty 0.7942 on Thursday morning; the highest point the exchange rate had experienced in over a year.

However, while many regions around the world observed Easter and other holidays throughout the long weekend, putting trading on pause, the Pound was briefly able to regain some strength against the shared currency towards the end of the week.

This is the result of the ECB’s latest bulletin, released on the 24th, which made official note of the possibility of further easing measures if early-March’s new stimulus methods failed to take hold. Investors took the warning to heart, leaving the weakening Euro in favour of the Pound and taking the pairing near 0.7900 as the week drew to an end.

This was a pleasant change for Sterling as the currency was battered by a week of political news and unfavourable market sentiment.

The week had opened on infighting within the UK’s Conservative government after the Work and Pensions Secretary resigned. His cited reason for resignation was the ‘unfair’ cuts made to disability benefits announced in Chancellor George Osborne’s 2016 Budget.

Fissures within the Tory party left some analysts and investors with a fear that the party could fall apart before the EU Referendum even takes place.

Brussels Attack Fuels ‘Brexit’ Anxieties and Pound Volatility Hits Six-Year High

On the subject of the referendum, new polls, announcements and changing sentiment last week brought the possibility of a ‘Brexit’ to the forefront of public consciousness once more, quickly burying any strength the Pound was experiencing.

The middle of the week was packed as London Mayor Boris Johnson continued his own ‘leave’ campaign, asserting that there was no real downside to Britain leaving the EU despite criticism from the Tory party that he had little evidence to back up his claims.

A tragic terrorist attack shook Belgium, the heart of the EU, last week as over 30 people died in explosions in Brussels. Fear from UK residents towards the European Union is thought to have increased over this event, as polls released throughout the week revealed a much smaller gap in numbers between the ‘leave’ and ‘remain’ voters than previously.

Investors and those within the forex market grow increasingly wary of Sterling as the June 23rd EU referendum is now less than three months away and the ‘leave’ campaign has grown in support. It was also revealed last week that the Pound’s volatility against the Euro had reached a six-year high.

Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: ‘Brexit’ Anxiety Less and Less Likely to Let Up

The upcoming week has only a small amount of key UK data releases, including house price, customer confidence and GDP prints.

The EU referendum vote will remain a key cause of market movement, with discussions, disagreements and controversies lighting up UK headlines every week.

A ‘Brexit’ would influence long-term uncertainty in the Pound as Britain would begin to work from scratch at establishing itself amongst its long-term trade partners around the world. Regardless of the vote’s outcome, investor sentiment towards Sterling will continue to fall as the uncertainty surrounding Britain’s economic future becomes more and more centred. Suffice to say, the Pound’s weakness seems unlikely to have hit its lowest point.

Various key Eurozone releases are also due for release this week. They include the highly anticipated German and Eurozone CPI prints for March, as well as regional employment data, again for both Germany and the general Eurozone.

The European Central Bank also appears to have finally made its stance clearer after confusion earlier this month, but if policymakers do not see promise in the Eurozone’s economic performance, further damage control could still be taken.