Euro Pound Sterling (EUR/GBP) Exchange Rate as UK-EU Trade Talks to be Stepped Up
UPDATE: The Euro Pound Sterling (EUR/GBP) exchange rate remained flat on Monday afternoon. This left the pairing trading at around £0.8985.
In talks between the UK and EU today, leaders agreed that trade negotiations on post-Brexit relations should be stepped up in order to reach a deal.
In a joint statement after Prime Minister Boris Johnson joined EU leaders for a video conference, they stated:
‘The Parties agreed […] that new momentum was required.
‘They supported the plans agreed by chief negotiators to intensify the talks in July and to create the most conducive conditions for concluding and ratifying a deal before the end of 2020.’
However, according to one EU diplomat, despite plans to speed up talks, major progress was unlikely until after the summer. They noted that this is when Britain would ‘scramble to get something done’ at the 11th hour.
Added to this a no-deal was not off the table. Jill Rutter, an expert at the UK in a Changing Europe thinktank told a Brexit panel discussion that a ‘very thin and unambitious deal’ was likely.
She added:
‘I think it would be totally wrong to think that the UK will be so desperate that It will move heaven and earth to avoid no deal.’
Euro Pound Sterling (EUR/GBP) Exchange Rate Muted on Fears of a Covid-19 Second Wave
The Euro Pound Sterling (EUR/GBP) exchange rate remained flat on Monday morning. This left the pairing trading at around £0.8979.
Sterling slipped against both the Euro and US Dollar (USD) on fears of a second wave of the coronavirus pandemic.
A new outbreak in Beijing, China as well as a growing number of infections in the United States has sent traders flocking to safety.
According to Viraj Patel, FX and global macro strategist at Arkera:
‘The Pound remains highly sensitive to changes in the external risk environment and is likely to continue trading on a corrective path lower in line with cross-asset markets.
‘The curveball provided by intensified Brexit talks today is unlikely to offset the gloomy outlook – however we expect the pound to remain sensitive to any headline Brexit risks over the coming weeks.’
Pound (GBP) Under Pressure Ahead of Key Brexit Meeting
Added to this, Sterling investors were also nervous ahead of a key meeting on post-Brexit trade negotiations.
Prime Minister Boris Johnson is due to join a video conference with EU leaders today. Although officials do not expect the current deadlock to be broken.
The UK’s Mail on Sunday reported the Prime Minister will use the meeting to ‘bang the table’. Johnson is expected to press the EU for an agreement by the end of summer.
In a note to clients, Lars Sparresø Merklin, senior analyst, FX strategy wrote:
‘We are sceptical that the two sides will find a breakthrough in the deadlocked negotiations especially on a possible extension of the transition period, which expires at the end of the year.
‘This extension needs to be agreed upon before 1 July if the two sides should be able to extend the transition period at a later stage in the fall.’
Euro (EUR) Flat despite Border Control Easing
Meanwhile, the Euro was left flat against Sterling despite European countries easing some border controls today.
The move is expected to help save part of the summer season for the bloc’s already-battered travel and tourism industry.
Meanwhile, the Euro remained under pressure today. A new ECB paper said trust in the European Central Bank has dropped more than other governing institutions over the past 10 years.
The ECB paper said:
‘Compared with both EU and national institutions, trust in the ECB appears to have been disproportionately affected by the crisis, experiencing a deeper fall and a slower recovery.’
Top sceptics included Germany and Austria which have been critics of the bank’s ultra-easy monetary policy for a long time.
The report also noted:
‘Making communication more accessible to people with differing levels of education and prior knowledge, and also addressing the concrete concerns of citizens in different parts of the euro area – such as the ECB’s role in economic outcomes – can enhance trust in the ECB.’
Euro Pound Outlook: German Inflation and UK Unemployment in Focus
Looking ahead, the Euro (EUR) could remain under pressure against the Pound (GBP) on Tuesday following May’s German inflation.
If inflation slumps further than expected due to the coronavirus pandemic, it will weigh on the single currency.
However, Pound investors will be focused on the release of Britain’s unemployment and wage growth data.
Data may show unemployment has jumped more than expected, while average earnings post the weakest increase in around five years. This will leave the Euro Pound (EUR/GBP) exchange rate flat.
