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EUR GBP Exchange Rate Nears Three-Year Low as ‘Hard Brexit’ Looks Likely

Pound Euro exchange rate forecast

The Euro (EUR) to Pound (GBP) exchange rate continued to climb further after a spike late last week. Market sentiment toward Sterling is increasingly negative, as rumblings of a ‘hard Brexit’ grow.

  • GBP Weakened by BBA Mortgage Loan Approval Figures – New mortgage loans lower than expected
  • ECB President Mario Draghi – Defends policy of low interest rates
  • Euro Boosted By Strong IFO Report – German business confidence at two-year high
  • Forecast: German Unemployment Data Due Thursday – -5k change expected

The Euro was also bolstered by IFO data that reported an increase in German business confidence for the month of August.

Euro Gains as ‘Brexit’ Pressure Sinks Pound

After largely fluctuating for most of last week, the Euro jumped by around a penny against the Pound at the end of the week’s session. Another half-penny rise was seen on Monday morning, with the movement being driven by concerns over the impact of the UK’s vote to leave the European Union.

General sentiment indicates that the UK government is pushing for a ‘hard Brexit’, in which the government would be willing to risk losing access to the single market in exchange for tighter controls over immigration. Scottish external affairs minister Fiona Hyslop commented that the “mood music” in recent talks had confirmed that Britain is heading towards a ‘hard Brexit’.

The Pound was also hurt by a lack of significant data releases last week, while the report that public borrowing was lower than the expected £10.4b at £10.1b did little to reverse Sterling’s slump.

German Data Release Helps to Strengthen Euro

Monday saw the release of the IFO report on German business confidence, which saw a rise in morale in the 7000 firms measured. Confidence had been weakened dramatically by the UK’s vote to leave the EU in June.

As confidence reached a two-year high IFO head Clemens Fuest commented that ‘the German economy is expecting a golden autumn’. This will be welcome news for investors who were worried of a slowdown in the EU’s largest economy.

Draghi Points to Economic Resilience as Low Interest Rates are Scrutinised

As EU economic growth looks set to continue, abet at a lower rate that envisaged in June, European Central Bank (ECB) President Mario Draghi has spoken of the resilience of the Eurozone following global uncertainty over ‘Brexit’.

Addressing concerns from several MEP’s on the low interest rate, Draghi stated that it was a “symptom of low growth”, and that there was evidence that they have helped the economy to recover. He also indicated that ‘other policy actors need to do their part, pursuing fiscal and structural policies’, in order to manage long-term growth prospects.

Draghi admitted that he ‘doesn’t have an answer’ to questions over the future of Euro clearing in London, amidst fears that the City will lose passporting rights in the event of a ‘hard Brexit’.

Euro Forecast: More German Data Releases Later in the Week

Wednesday will see the release of the German GFK consumer confidence survey and is predicted to hold at 10.2, while Thursday will provide vital German unemployment and Consumer Price Index figures and finally Friday brings the German retail sales for August. The forecast is looking good for most of these stats and the Euro could see a healthy bump against the Pound.

Conversely the Euro to Pound exchange rate could see a slight drop if the news from the UK’s August consumer credit and mortgage approval reports is positive.

Current Exchange Rate

At the time of writing the EUR GBP exchange rate was trending around 0.8762 and the GBP EUR exchange rate was trending around 1.1531.