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Euro Pound Sterling (EUR/GBP) Exchange Rate Benefits as Odds of No-Deal Brexit Rise

Euro Pound Sterling (EUR/GBP) Exchange Rate Gains Traction in spite of ECB Caution

As the latest European Central Bank (ECB) Economic Bulletin highlighted a continued sense of caution among policymakers this left the Euro to Pound Sterling (EUR/GBP) exchange rate on a weaker footing.

Demand for the Euro (EUR) diminished in the wake of the Bulletin, with the central bank appearing on course to leave monetary policy on hold for longer.

With the odds of a 2019 interest rate hike continuing to shrink investors saw little incentive to favour the single currency over its rivals this morning.

Policymakers expressed fresh disappointment over the level of inflationary pressure within the Eurozone, with underlying price pressures still failing to pick up as the ECB would like.

Coupled with signs of underwhelming growth across the currency union this left the EUR/GBP exchange rate with limited support.

Strong UK Retail Sales Fail to Shore up Pound (GBP) Exchange Rates

Better-than-expected UK retail sales figures failed to shore up Pound Sterling (GBP), meanwhile, as Brexit uncertainty continued to weigh on market sentiment.

Although sales accelerated 3.8% on the year in February, suggesting that consumers are continuing to shrug off Brexit worries, GBP exchange rates remained on the back foot.

Reports that EU officials will reject Theresa May’s request for an extension to the Brexit deadline largely overshadowed this positive data.

With the EU insisting that the deadline cannot be extended past 22nd May, in order to avoid interfering with European parliamentary elections, the risk of a no-deal Brexit appeared to increase.

This naturally left the Pound trending lower across the board, with little over a week now left before the current Article 50 deadline.

In the midst of this sense of political uncertainty and instability the EUR/GBP exchange rate was encouraged to recover some of its lost ground.

Pound Sterling (GBP) Looks for Support on BoE Minutes

The impact of this afternoon’s Bank of England (BoE) interest rate decision is likely to prove limited thanks to the latest surge of Brexit-based anxiety.

Even so, the meeting minutes could put pressure on the EUR/GBP exchange rate if policymakers adopt a more optimistic outlook.

Signs of hawkishness among BoE policymakers may encourage investors to buy into the Pound once again, with markets still hopeful of the prospect of a 2019 interest rate hike.

If the BoE indicates confidence in the underlying health of the UK economy, in spite of Brexit pressures, this could put a floor under GBP exchange rates today.

However, as the BoE’s hands remain tied as a result of the uncertainty still surrounding the UK’s future relationship with the EU any boost to the Pound could prove limited.

Any signs of increased caution, on the other hand, would leave the Pound vulnerable to further losses, offering a fresh leg up to the EUR/GBP exchange rate.