Euro to Pound Exchange Rate Edges Away from Worst Levels after Monday Plunge
Despite a slight recovery for the Euro (EUR) versus a weak Pound (GBP) last week, the Euro to Pound Sterling (EUR/GBP) exchange shed those gains and more yesterday as investors reacted to the latest Brexit developments.
After opening this week at the level of 0.8631, EUR/GBP briefly jumped to a March high of 0.8673 before plunging for the rest of the day. Overnight, EUR/GBP touched on a low of 0.8497 – the pair’s worst level since 2017.
So far this morning, EUR/GBP has rebounded just slightly and trends close to the level of 0.8520 ahead of what is set to be a day of major Brexit news.
Yesterday’s data and rumours that the Eurozone economic outlook is improving helped the Euro to avoid deeper losses, but the market focus is heavily on the Pound today.
Euro (EUR) Exchange Rates Lack Drive versus Volatile Sterling
This week’s EUR/GBP movement so far has been largely driven by movement in the Pound, and the Eurozone’s latest data has not had a particularly strong impact on the Euro.
Investors found the Euro a little more appealing when Germany’s January trade balance stats beat forecasts yesterday, but Germany’s industrial production stats unexpectedly contracted in January and prevented the Euro from capitalising on the trade data.
The Euro’s movement has also been influenced by strength in its rivals, like the Pound but also the US Dollar (USD) which has a negative correlation with the Euro.
US data has fallen short of expectations in recent sessions which has helped the Euro to avoid worse losses.
However, the Euro has been unappealing overall since last week’s dovish European Central Bank (ECB) policy decision.
Pound (GBP) Exchange Rates Surge on Soft Brexit Hopes
After a week of deadlocks and a lack of news dragged the Pound lower last week, Monday saw a slew of last-minute Brexit developments that led to a surge in demand for the British currency.
When markets opened in the morning, investors were growing concerned that today’s meaningful UK Parliament Brexit votes could be delayed and worsen the chances of a worst-case scenario no-deal Brexit.
However, as the UK government reasserted that the meaningful votes would begin on Tuesday, the Pound began to recover.
Sterling’s recovery became more of a surge towards the end of the day, as UK Prime Minister Theresa May rushed to meet European Commission President Jean-Claude Juncker and agreed for assurances regarding the Irish backstop to be attached to the negotiated Brexit deal.
The deal bolstered hopes that the government’s Brexit deal could see stronger support domestically, bolstering the perceived chances of a soft Brexit.
While analysts doubt the wording change will be enough to push the deal through Parliament, no-deal Brexit fears receded again following the news.
Sterling slipped this morning ahead of the votes though, as investors took profits from yesterday’s surge and steadied their positions. This morning’s stronger than expected UK data did little to change this.
Euro to Pound (EUR/GBP) Exchange Rate Outlook Depends on Parliament’s Brexit Votes
Demand for the Pound is likely to be hugely volatile over the coming sessions, with major developments in the Brexit outlook anticipated and the potential for there to be meaningful clarifications on how the process will unfold.
Today’s meaningful UK Parliament vote on the government’s Brexit plan could be the big one.
With the Brexit plan potentially more popular following the fresh agreement in UK-EU talks last night, the Pound would see a surge in demand if the Brexit deal somehow finds enough support to pass.
Even if the deal does not pass through, the Pound has the potential to rise in the coming days if Parliament goes ahead to vote against a no-deal Brexit and vote in favour of a delay to the Brexit process.
While the Pound’s movement will be particularly influential for EUR/GBP in the coming days, the Euro to Pound (EUR/GBP) exchange rate could also be driven by Eurozone industrial production tomorrow or German inflation stats on Thursday.