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GBP EUR Exchange Rate Forecast to React to Brexit Developments

  • GBP EUR Exchange Rate Near 1.12 – But continues to trend tightly
  • Market Anxiety over Brexit – Ireland border and EU deadline concerns in focus
  • GBP Forecast: Brexit Bill Deadline 4 December – Will UK negotiators make concessions?
  • EUR Forecast: Eurozone Inflation Ahead – German inflation on Wednesday, bloc on Thursday

The GBP EUR exchange rate has seen narrow movement since markets opened on Monday. Investors hesitate to make much movement on the Pound as Brexit developments are anticipated, while German political uncertainties keep pressure on the Euro.

GBP EUR slipped slightly last week, from 1.1207 to 1.1177 after wide fluctuations. The pair tested the level of 1.12 briefly on Monday night but generally remains near the week’s opening levels.

Pound (GBP) Supported by Bank Stress Test Success

Sterling’s strength has been limited in recent sessions due to Britain’s concerning economic outlook and persistent uncertainties about both the near-term and long-term success of the Brexit process.

While the UK government has reportedly doubled its offer for the UK-EU ‘divorce bill’, the Pound’s benefit from this news was limited as it has emerged that the EU and Ireland are unsatisfied with Britain’s proposed plan for the Northern Ireland to Ireland border solution.

Northern Ireland and Ireland wish to keep a soft border following Brexit, but Ireland remains within the EU while NI will be leaving the EU with the rest of the UK.

UK International Trade Secretary Liam Fox has argued that plans for the border cannot be finalised until after UK-EU trade talks have taken place, but EU officials insist that issues like the border and citizen rights must be solved before trade negotiations can begin in full.

On top of Brexit-related complications, Ireland is undergoing some domestic issues too.

Amid concerns that Ireland’s government could collapse, there is speculation that a snap election could be called soon. Considering Ireland’s close involvement in UK-EU Brexit talks, this could cause further delays to Brexit negotiations which has concerned Pound traders.

Still, Sterling’s losses have been limited despite this. The currency has found support in hopes that Brexit negotiations can still accelerate soon, as well as Tuesday’s news that UK banks had passed a Bank of England (BoE) stress test.

The BoE tested domestic banks to make sure they could survive Brexit, and found that banks would be able to weather even a disorderly ‘hard Brexit’.

This gave some investors more confidence as it was the first time since BoE stress tests began in 2014 that no major lenders had to raise extra capital. The news is also likely to relieve the UK Treasury and UK Chancellor Philip Hammond.

Despite the overall optimistic report though, BoE Governor Mark Carney insisted that while the financial system would survive a ‘hard Brexit’, it was still in the nation’s best interests to avoid it;

‘This is not a good scenario. It’s a scenario we should — we are — all working to avoid, because it has some quite material economic costs. Even if the financial system continues to function through it.’

Euro (EUR) Weighed by German Political Uncertainty

The Euro has been unable to capitalise on the Pound’s weakness since Monday, as investors have hesitated to buy into the shared currency.

German political uncertainties continued to dominate headlines.

Markets were more confident following reports that German Chancellor Angela Merkel’s CDU would enter talks to form another ‘grand coalition’ with SPD, potentially continuing the status quo of the previous government.

However, it has emerged that officials on both sides are hesitant and that ‘grand coalition’ negotiations are unlikely to begin until the New Year – over three months after the election itself took place.

The SPD is weighing up whether working with Merkel again could backfire and damage the party’s appeal as an opposition.

Overall, a considerable amount of political uncertainty remains in Germany which is keeping pressure on the Euro.

GBP EUR Exchange Rate Forecast: Brexit and Eurozone Inflation in Focus

Brexit developments are likely to remain in focus for Pound traders until the 4th of December – a deadline given to the UK government by EU negotiators.

Any developments on the Brexit process in the coming days could have an impact on GBP EUR exchange rate movement.

If the UK government does not improve its offer on the Northern Ireland border by the 4th of December, Brexit negotiations could see yet another delay and trade talks could be pushed back months. This could cause extended Pound weakness and GBP EUR could fall.

On the other hand, if the UK government meets the deadline and this leads Brexit negotiations to accelerate in December, the Pound to Euro exchange rate will advance.

Over in the Eurozone, German politics could take a backseat until early 2018 when coalition talks will supposedly resume.

Instead, investors will focus on key upcoming inflation stats. German Consumer Price Index (CPI) projections from November will be published on Wednesday, followed by Eurozone inflation on Thursday.

GBP EUR Interbank Rate

At the time of writing this article, the GBP EUR exchange rate trended in the region of 1.1188. The Euro to Pound exchange rate traded at around 0.8937.