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Euro to Pound (EUR/GBP) Exchange Rate Rises as Brexit Talks Show Signs of Breaking Down

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EUR/GBP Exchange Rate Edges Higher as Brexit Concerns Weigh on Sterling

The Euro to Pound (EUR/GBP) exchange rate rose by 0.2% today, with the pairing currently trading around £0.911.

The Pound (GBP) fell against the single currency today after Brexit talks between Downing Street and the EU failed to show any progress. This follows comments from Michael Gove, the senior cabinet minister, who said that talks had ‘effectively ended’.

However, EU Chief Brexit Negotiator, Michel Barnier, tweeted:

‘I spoke again to [UK Chief Negotiator David Frost] today. My message: we should be making the most out of the little time left.’

‘Our door remains open.’

Nevertheless, with Prime Minister Boris Johnson retaining a hard stance on Brexit – and saying that the UK was heading for an Australia-style deal – GBP investors have remained cautious.

In other UK news, today also saw the Bank of England (BoE) drop another hint that it could be taking its interest rates into negative territory.

BoE policy maker Gertjan Vlieghe commented:

‘My own view is that the risk that negative rates end up being counterproductive to the aims of monetary policy is low. Since it has not been tried in the UK, there is uncertainty about this judgment, and the MPC is not at a point yet when it can reach a conclusion on this issue.’

Consequently, GBP investors are becoming increasingly worried that the UK could be in for a bumpy ride throughout the winter months.

Euro (EUR) Rises as Single Currency Capitalises on US Dollar Weakness

The Euro (EUR) edged higher owing to weakness in the currency’s largest competitor, the US Dollar.

With growing hopes that the US could concede on a Covid-19 stimulus package before November’s American presidential election, the US currency has suffered a sell-off in favour of riskier assets.

The single currency has also benefited from reassuring signs that the Eurozone’s construction sector could be on the mend.

Eurostat commented in their report:

‘In August 2020, the seasonally adjusted production in the construction sector rose by 2.6% in the euro area and by 2.4% in the EU, compared with July 2020, according to first estimates from Eurostat, the statistical office of the European Union. In July 2020, production in construction increased by 0.3% in the euro area while it remained stable in the EU.’

In Eurozone economic data, today also saw the release of Germany’s Producer Price Index for September rise from 0% to 0.4%.

As a result, this has sparked hopes that the Eurozone’s powerhouse economy could be on the road to recovery.

EUR/GBP Forecast: Could No-Deal Brexit Fears Drag Down Sterling Further?

Euro (EUR) investors will be awaiting tomorrow’s speech from Christine Lagarde, the European Central Bank’s (ECB) President.

Any indications that the Eurozone’s economy is struggling to emerge from the Covid-19 pandemic would prove EUR-negative.

EUR could also continue to benefit from weakness in the US Dollar this week. As a result, the single currency could rise if the likelihood of US stimulus increases.

The EUR/GBP exchange rate will continue to be driven by UK-EU Brexit developments, however. As a result, we could see Sterling sink if Downing Street adheres to its hard stance on Brexit.