Lack of Brexit Transition Extension Keeps Euro Pound (EUR/GBP) Exchange Rate on Narrow Trend
As Boris Johnson poured cold water over the prospect of an extension to the Brexit transition period the Euro to Pound (EUR/GBP) exchange rate remained on a weak footing.
Markets were largely discouraged by the nature of Johnson’s comments, which appeared to point towards a wide divide between the UK and EU over their ongoing talks.
The increasing odds of the two sides failing to reach an agreement on fishing rights, the area which remains a disproportionate roadblock to progress, left Pound Sterling (GBP) under pressure.
Investors sold out of the Pound once again as the prospect of a no-deal scenario appeared to rise, stoking existing anxiety over the outlook of the UK economy.
As the latest Office for Budget Responsibility (OBR) forecasts indicated that the UK economy will contract -11.3% in 2020 support for GBP exchange rates naturally weakened.
Euro Looks Vulnerable Ahead of European Central Bank Meeting Minutes
The mood towards the Euro (EUR) may sour further on Thursday with the release of the latest set of European Central Bank (ECB) meeting minutes.
With forecasts pointing towards a dovish set of minutes the appeal of the single currency looks set to weaken in response to the rising certainty of December policy action.
As long as the minutes indicate that the central bank is gearing up to loosen monetary policy once again before the end of the year support for the Euro may well weaken.
Although markets already largely anticipate such a move any additional dovish confirmation could still push the EUR/GBP exchange rate lower in the near term.
December’s German GfK consumer confidence index may also put pressure on the single currency, with markets anticipating a fresh decline in sentiment on the month.
Fresh evidence that consumers within the Eurozone’s powerhouse economy are taking a more negative view in the face of the ongoing Covid-19 crisis could see the Euro shedding further ground.
Nationwide Housing Price Index Growth May Support Pound Demand
While Brexit-based developments look set to dominate the outlook of the Pound it could still find some support ahead of the weekend.
Friday’s Nationwide housing price index release may offer a rallying point to GBP exchange rates, provided that house prices continue to push higher.
Continued strength within the UK housing market may limit some of the wider anxiety over the health of the economy, especially in the face of Brexit and Covid-19 worries.
On the other hand, a softer showing from the housing data may leave the Pound vulnerable to another wave of selling pressure.
Until the issue of Brexit shows signs of coming to some form of resolution this should limit the downside potential of the EUR/GBP exchange rate.