EUR/GBP Exchange Rate Steadies on BoE’s Warning for the City
The Euro to Pound (EUR/GBP) exchange rate is ticking higher this morning, amidst concerns over the UK’s future access to EU financial markets.
At the time of writing the EUR/GBP exchange rate is trading at around £0.8771, virtually unchanged from today’s opening levels.
Pound (GBP) Subdued as BoE Governor Warns of ‘Unrealistic’ Demands from EU on Financial Services
The Pound (GBP) has been met by some weakness this morning, following a warning from Bank of England (BoE) Governor Andrew Bailey regarding the UK’s future access to EU financial services.
In the Governor’s annual Mansion House speech to the City, Bailey suggested that ‘unrealistic’ demands by the EU are a sign the EU is planning to cut the UK off from its financial markets.
‘The EU has argued it must better understand how the UK intends to amend or alter the rules going forwards.
‘This is a standard that the EU holds no other country to and would, I suspect, not agree to be held to itself. It is hard to see beyond one of two ways of interpreting this statement, neither of which stands up to much scrutiny.’
The loss of access to the EU’s financial markets would be a major blow to the UK economy, so its unsurprising to see Sterling weaken on the back of Bailey’s comments.
Financial services were not covered in last year’s Brexit trade agreement, and the EU granted a six-month extension to the transition deal to the UK’s financial services industry.
The UK and EU are currently in discussions regarding the service sector, with hopes that an agreement could be reached in March.
Euro (EUR) Buoyed by USD Weakness
The Euro (EUR), meanwhile, is edging higher this morning as the single currency continues to benefit from weakness in the US Dollar (USD).
The negative correlation between the pairing has lent support to EUR exchange rates through most of this week’s session as the ‘Greenback’ has fallen in step with US Treasury yields.
The last slump comes in the wake of yesterday’s US CPI figures, which reported US inflation stalled in January.
EUR/GBP Forecast: Expansion in UK GDP to Boost Sterling?
Looking ahead to the end of this week’s session, it’s clear that the main catalyst of movement in the Euro to Pound exchange rate will be the publication of the UK’s latest GDP figures.
Economists expect the UK economy to have expanded by 0.5% in the final quarter of 2020, down from a record high of 16% in Q3, but enough to prevent a double-dip recession this winter.
However, with a high level of uncertainty still surrounding the last quarter of 2020 as a result of the second national lockdown and increased restrictions in the buildup to Christmas, there is still scope for disappointment, which could weigh down Sterling.
Meanwhile, in the absence of any notable Eurozone data releases, we are likely to see the EU’s vaccine woes remain high on the agenda for EUR investors, potentially leading to some weakness in the Euro as the continent’s vaccination efforts continue to lag well behind the US and UK.