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EUR GBP Exchange Rate Slips as Catalonia Concerns Persist

  • EUR GBP Exchange Rate Remains at 0.89 – Pair trends lower on Monday
  • Catalonia Tensions Could Worsen – Will the region attempt to declare independence?
  • EUR Forecast: All Eyes on Spain – Euro could weaken if Catalonia fights control
  • GBP Forecast: UK Growth on Wednesday – Could have an impact on BoE speculation

The EUR GBP exchange rate slipped when markets opened on Monday, as Sterling continued to benefit from fresh Brexit hopes while concerns about tension between Spain and Catalonia persisted, keeping demand for the Euro weak.

EUR GBP did advance slightly last week, from 0.8897 to 0.8938. The pair failed to hold its Friday high of 0.9021 due to Brexit developments. On Monday, the pair slipped, while investors anticipate developments from Catalonia and the European Central Bank (ECB).

Euro (EUR) Weighed on by Catalonia Jitters

Concerns that Catalonia could still attempt to declare independence even as it loses autonomy weighed on the Euro on Monday morning.

Over the weekend, the Spanish government indicated that it would indeed activate Article 155 of Spain’s constitution and move to take direct legal control over Catalonia, as well as push for elections in the region.

Catalonian leaders and separatists have yet to announce how they plan to respond to the news, but markets are concerned that there is space for things to worsen.

For example, if Catalonia declares independence after all, it would indicate that the region is willing to fight against Spain’s attempts to take control.

Still, for the time being, the latest Catalonia jitters have only had limited impact on Euro trade.

According to Pierre Bose, head of European equities strategy at Credit Suisse;

‘At this moment you’ve not got contagion from Spain to the broader European market. It’s seen as a national and localized issue’

The EUR GBP exchange rate’s Monday drop is also due to European Central Bank (ECB) uncertainty and the Pound’s own strength.

Markets widely expect the European Central Bank (ECB) will announce its plans to rein in its aggressive quantitative easing (QE) program on Thursday.

The ECB faces a delicate balancing act and is under pressure to announce its QE lightening plans without giving investors much reason to buy the already strong Euro.

A strong surge in Euro strength would weigh on Eurozone inflation and cause the ECB to need to keep monetary policy ultra-loose for an extended period of time.

Market concerns that the ECB will announce its QE withdrawal plans while maintaining a dovish tone put further pressure on the Euro on Monday.

Pound (GBP) Supported by Hope of Brexit Progress

On Friday, the Pound saw a surge in demand following some optimistic comments on Brexit from many high-ranking EU officials.

Analysts and critics have long-thought that Brexit negotiations were going so poorly, that some rumours had even emerged that the talks would end with ‘no deal’.

Concerns about a ‘no deal’, ‘hard Brexit’ had weighed heavily on Pound performance over the last month, while political jitters also rose on concerns that UK Prime Minister Theresa May was seeing less domestic support.

EU leaders, concerned about how EU talks would end up if May’s position was undermined, put an emphasis on the progress that talks had made, and insisted that talk of a ‘deadlock’ in negotiations had been overblown.

Some, such as French President Emmanuel Macron, stated there was no chance of a ‘no deal’ Brexit.

European Commission President Jean-Claude Juncker also noted that officials were now preparing for post-Brexit UK-EU trade talks, but this phase of negotiations would not begin until the divorce agreement phase had completed.

The Pound’s strength faded on Monday as investors awaited more big developments. Still, overall GBP investors are now more optimistic about the Brexit process.

EUR GBP Exchange Rate Forecast: Euro Could Drive Movement This Week

News from the Eurozone is likely to drive the EUR GBP exchange rate in the coming days, as investors react to developments from Catalonia, the European Central Bank (ECB) as well as fresh ecostats.

If Catalonia shows resistance to Spain’s attempts to take control over the region, the shared currency could see volatile trade as concerns of a clash rise.

Failing that though, key data due on Tuesday and Wednesday could impact the Euro outlook slightly.

Tuesday will see the publication of Markit’s preliminary October PMIs for the Eurozone. The figures are expected to have remained near the strong levels seen in recent months, which could help the Euro hold its ground.

Ifo’s German business sentiment data from October could also influence Euro trade on Wednesday.

However, investors are more likely to overlook most upcoming data and look ahead of Thursday’s European Central Bank (ECB) policy decision and press conference.

If the ECB announces its quantitative easing (QE) scheme withdrawal plans as expected, the tone the bank takes when doing so could have a notable impact on the movement of the EUR GBP exchange rate.

EUR GBP Interbank Rate

At the time of writing this article, the EUR GBP exchange rate trended in the region of 0.8915. The Pound to Euro exchange rate traded at around 1.1215.