Pound Euro (GBP/EUR) Exchange Rate Softens Today with Mounting Brexit Jitters
With speculation over Brexit returning to the fore the Pound to Euro (GBP/EUR) exchange rate remained under pressure, lacking any particular support at the start of the week.
Markets are jittery ahead of the latest EU council meeting, which is expected to set out the bloc’s position on the matter of a Brexit transition period.
As analysts at Lloyds Bank noted:
‘The council is expected to announce the EU’s negotiating position around the transition period, leading up to the UK’s planned departure from the EU. These are expected to state that during this period, the UK will no longer be a part of the EU’s decision making; that the period will be for a defined length of time and that the UK will continue to be under the jurisdiction of the European Court of Justice.’
With signs of ruction already breaking out within the Conservative ranks once again any indication that the EU is adopting a hard negotiating position on the issue could see the Pound (GBP) weaken markedly.
Weaker German Import Prices Fail to Boost Pound Euro Exchange Rate
Although the German import price index slowed significantly in December this failed to shore up the GBP/EUR exchange rate.
While the index dipped from 2.7% to 1.1% on the year the mood towards the Euro (EUR) remained broadly optimistic.
Investors continued to favour the single currency thanks to speculation over the policy outlook of the European Central Bank (ECB), which markets hope to see shifting towards a more hawkish stance in the coming months.
As Governing Council member Klass Knot commented that the ECB’s quantitative easing program should end as soon as possible this helped to stoke the bullish mood of EUR exchange rates further.
Even so, with the odds of any imminent policy action still looking rather low the Euro may struggle to hold onto its recent gains in the longer term.
Euro (EUR) Exchange Rates Forecast to Come Under Pressure Ahead of Eurozone GDP Data
Tomorrow’s Eurozone gross domestic product and German consumer price index data are likely to provoke additional volatility for the GBP/EUR exchange rate.
As forecasts point towards a contraction in German inflationary pressure on the month this could set EUR exchange rates on a fresh downtrend.
Signs that price pressures within the Eurozone’s powerhouse economy are easing would give markets incentive to sell out of the Euro, undermining the odds of any imminent ECB action.
On the other hand, if the Eurozone continues to demonstrate strong growth in the fourth quarter GDP report the single currency is likely to find support.
A shift in December’s UK net consumer credit figure may offer the GBP/EUR exchange rate encouragement, meanwhile.
Reduced consumer reliance on credit could foster greater confidence amongst Bank of England (BoE) policymakers, who have previously expressed some concern over the issue.
However, as any decline would point towards declining consumer spending this would not represent such a positive result for the wider UK economy.
Either way, the GBP/EUR exchange rate looks set to see some volatile trading on Tuesday.