Euro to Pound Exchange Rate Struggles to Hold Best Levels but Remains Strong
The Euro to Pound Sterling (EUR/GBP) exchange rate is on track to have sustained strong gains this week. The Euro (EUR) has benefitted from weakness in the US Dollar (USD), while the Pound (GBP) is pressured by UK political uncertainties.
Since opening this week at the level of 0.8957, EUR/GBP has spent most of the week climbing. EUR/GBP touched on a weekly high of 0.9058 on Thursday.
While EUR/GBP has fallen from that high, it trended closely to the level of 0.9046 at the time of writing on Friday. EUR/GBP is now only trending around half a pence lower than the yearly high it saw in quiet trade at the beginning of the month.
The Euro has been one of this week’s more appealing major currencies. Investors are buying the shared currency due to weakness in rivals like the Pound and US Dollar (USD).
Investors have been selling the Pound as the perceived uncertainties surrounding UK politics and the Brexit process are worsening with mere months until the formal Brexit date.
The UK opposition Labour Party is putting pressure on the UK government to announce a snap election in the event that next week’s UK Parliament vote on Brexit fails.
The US Dollar’s weakness is influential too, as the Euro and US Dollar share a negative correlation.
Euro (EUR) Exchange Rates Benefit from Rival Weakness despite Lack of Strong Eurozone News
Much of the Euro’s strength in the past week has been more due to weakness in other major currencies like the Pound and US Dollar (USD), leaving the Euro more appealing in comparison.
The Euro is negatively correlated with the US Dollar (USD), its biggest rival. As the US Dollar has been sold on US political jitters, US-China trade developments and lower Federal Reserve interest rate hike bets this week, the Euro has been more appealing.
On Thursday evening, Federal Reserve Chairman Jerome Powell noted that the bank was willing to be patient on US monetary policy if inflation was stable. Due to his comments, markets are now pricing in that US interest rates will remain frozen this year.
This news caused today’s Euro strength, but the shared currency’s potential for further gains is limited.
Besides the Eurozone retail and unemployment data earlier in the week, Eurozone data continues to indicate that the Eurozone economy is slowing, limiting the shared currency’s market demand.
Pound (GBP) Exchange Rates Sold amid Fresh General Election Speculation
The Pound has been unappealing for most of the week, as the UK government lost UK Parliament votes on amendments that could affect the Brexit process.
As the UK government lost two major amendment votes this week, market hopes that the UK government could win next week’s highly anticipated Parliament vote on the Brexit deal are low.
With the UK government unlikely to find the support to pass its negotiated Brexit plan through UK Parliament, the Brexit process may well be thrown into deeper uncertainty next week as UK politicians attempt to find another potential resolution.
The Leader of Britain’s opposition Labour Party has said that the priority in the case of a UK government defeat should be a general election.
Fears of a possible general election causing even deeper uncertainty about Brexit, with mere months until the UK is set to leave the EU, left the Pound unappealing at the end of the week.
Euro to Pound (EUR/GBP) Exchange Rate Investors Focus on Parliament’s Brexit Vote
Next week is set to be a highly significant week for the Euro to Pound (EUR/GBP) exchange rate outlook, as UK Parliament will finally hold the highly anticipated vote over UK Prime Minister Theresa May’s negotiated Brexit deal.
Following the vote, UK politicians will finally focus on the next step in the Brexit process – and this could finally offer some clarity on what kind of Brexit will unfold.
The Brexit deal is not expected to be able to pass through UK Parliament. As a result, GBP/EUR may see volatile movement for much of next week as investors anticipate the UK government’s potential Brexit ‘Plan B’.
Potential options in the event of the deal being blocked include a fresh attempt at renegotiation, a ‘no-deal Brexit’, another general election or even a second referendum.
In the event of a ‘no-deal Brexit’ or a general election, the Pound would be in for even deeper weakness.
Brexit developments are likely to drive EUR/GBP next week, but US news and Eurozone data could also drive the Euro.
Eurozone inflation stats will be published throughout the week, which could bolster demand for the Euro to Pound (GBP/EUR) exchange rate if they impress investors.