- Pound Euro Exchange Rate (GBP/EUR) Free-Falls after UK Votes ‘Leave’– Biggest drop in 30 years on Friday
- Euro (EUR) Dragged Lower by Eurozone Fears– Euroscepticism rises after ‘Brexit’
- Forecast: Bearish Pound Run Could be Long-Term – Will GBP/EUR hit parity?
- Forecast: Will Central Banks Increase Easing?– What measures will BoE and ECB take?
Calmer Trading Conditions Send GBP EUR Higher
After advancing modestly on Tuesday the Pound Euro exchange rate continued its gentle uptrend on Wednesday to approach, and then push beyond, the 1.21 level.
While Germany’s GfK Consumer Confidence Survey showed an improvement in sentiment and the UK’s Nationwide House Price numbers came in above forecast, domestic data continues to have little impact on GBP/EUR trading as the UK’s Brexit negotiations continue.
The Pound Euro exchange rate was trending in the region of 1.2113 – up 0.5% on the day’s opening levels.
The Pound was also able to strengthen against the US Dollar, Australian Dollar, New Zealand Dollar and Canadian Dollar during the European session.
However, any news on the leadership struggles of the Conservative and Labour parties or any commentary from key officials regarding the UK’s post-Brexit future could trigger renewed GBP/EUR volatility.
As David Cameron has made it clear that Article 50 should be invoked by the new Prime Minister, there are unlikely to be any significant developments in that area until the new PM is in power.
(Previously updated 28/06/2016)
Pound Euro Sustains Mixed Recovery on Tuesday
The Pound Euro exchange rate fluctuated widely during Tuesday’s session. Investors took advantage of a day of little news and uncertainty by buying the Pound from its lowest levels throughout the day.
However, Sterling remained very weak and volatile. The Euro performed similarly throughout the day and slightly recovered from its lows against some rivals other than the Pound.
Markets are still highly unsure of when Article 50 will be activated, by which the formal process of a Brexit will begin. Some speculate it could be within days, others suggest it may not happen for years.
Developments within the UK government are also ongoing. Candidates for the new Conservative Prime Minister have been coming forward, with current favourites being Boris Johnson and Theresa May. The Labour party remains in crisis, with over 50 front-bench MPs having quit under Jeremy Corbyn’s leadership.
The Pound to Euro exchange rate currently trends widely in the region if 1.2050, having also reached as high as 1.2111 and as low as 1.1985 at points throughout the day.
(Previously update 14:45 28/06/2016)
Brexit Developments Drive Sentiment but Pound Recovers to 1.20
Although markets remain highly unsettled following the UK’s EU referendum and decision to Brexit, the Pound Euro exchange rate steadied at 1.20 on Tuesday.
Today’s speech from European Central Bank (ECB) President Mario Draghi could inspire GBP/EUR movement, as could any further commentary from the Bank of England (BoE) and key political figures.
In his speech Draghi pushed for a coordinated approach to policy among central banks. He stated; ‘In a globalized world, the global policy mix matters—and will likely matter more as our economies become more integrated. So we have to think not just about whether our domestic monetary policies are appropriate, but whether they are properly aligned across jurisdictions.’
As it stands, the Pound Euro exchange rate is trending in the region of 1.2040. The Pound was able to cling to the day’s gains in spite of the UK’s credit ratings being called into question by top ratings agencies Standard & Poor’s and Fitch. Moody’s cut the UK’s ratings outlook to negative when the Brexit result was announced.
(Previously updated 27/06/2016)
Pound Euro Exchange Rate at 1.19 as Brexit Vote Inspires UK Government Turmoil
The Pound Euro exchange rate managed to stabilise around the 1.24 level on Friday after initially dropping to 1.20 in reaction to the news that the UK had voted to leave the EU.
However, 16 resignations in the Labour Shadow Cabinet and marked uncertainty following David Cameron’s resignation as Prime Minister ensured that the Pound’s downtrend continued as markets reopened after the weekend. The future of UK politics is looking far from certain at the moment.
Additionally, as noted by TorFX currency analyst Josh Ferry Woodard; ‘With Britain’s two largest parties in crisis, Scotland calling for a second independence referendum and Irish politicians calling for reunification, the initial consequences of ‘Brexit’ have done little to assuage fears of further financial turbulence.’
The GBP/EUR exchange rate hit a low of 1.1980 while the Pound US Dollar exchange rate dropped -3.2% to trend in the region of 1.2352.
Sterling also registered notable declines against the Australian, New Zealand and Canadian Dollars and some analysts are anticipating further losses.
Kit Juckes of Societe Generale observed: ‘With recriminations, two main parties in turmoil and nothing but questions and uncertainty as far as the eye can see. I see no reason to buy the dip.’
Germany has also asserted that there will be no informal talks on the UK’s exit from the EU until the process is underway.
German Chancellor Angela Merkel commented: ‘The reality is that a majority of British citizens voted to leave… so I await a communication about Article 50 from the UK addressed to the EU.’
(Previously updated 07:00 27/06/2016)
The Pound Euro exchange rate (GBP/EUR) plummeted last Friday after it was confirmed that the British public had indeed voted to ‘Leave’ the European Union despite markets appearing confident in a ‘Remain’ result.
GBP/EUR fell to its lowest levels since March 2014 overnight as results came in, before Friday morning’s announcements set a ‘Brexit’ in stone. The Pound experienced its furthest one-day-drop in over 30 years, losing almost -1000 pips against the Euro. On Friday afternoon, the pair was trending in the region of 1.2455 after falling from levels that neared 1.32.
Pound (GBP) Battered after Unexpected ‘Brexit’ Vote
Markets had priced in a victory for the ‘Remain’ camp for the majority of last week’s session after polls and bets indicated a shift towards the status quo. As a result, Sterling had strengthened until Thursday evening.
However, after polls closed and results began to be announced, the Pound dropped across the board as ‘Leave’ had unexpectedly dominated the majority of rural England, as well as a considerable portion of Wales.
While Scotland, Northern Ireland and London voted a majority to ‘Remain’, the final results eventually revealed that Britain would ‘Brexit’ from the European Union in the coming years.
Immediately shooting the Pound downward with an uncertain future confirmed, uncertainty worsened after UK Prime Minister David Cameron announced his resignation. Cameron expects to be succeeded by a new Conservative PM by October 2016.
Following the result, various leaders from Britain and around the world released statements, with the news shocking global markets.
This included indication from Scottish National Party (SNP) Leader Nicola Sturgeon that a second Scottish Referendum was highly likely. The new referendum would have the intention of breaking Scotland away from the UK, and remaining in the EU before the UK pulls Scotland out of the EU against its will.
Uncertainty was rife across the Kingdom, with Northern Ireland deputy leader Martin McGuinness calling for a vote for Northern Ireland to reunite with the rest of Ireland, rather than follow the UK out of the EU. Northern Ireland or Scotland (or both) leaving the UK would have more serious effects on the Pound.
Warnings that the Bank of England (BoE) may cut interest rates to zero by the end of the year also weighed on the Pound. The BBC reported;
‘David Tinsley, UK economist at UBS, said Brexit meant “sharply lower growth, a large drop in the pound, and further easing from the Bank of England”.
He expects two rate cuts from the central bank over the next six months.
It would take rates from a current record low of 0.5% to zero.’
Euro (EUR) Struggles to Maintain Levels due to Eurozone Fears
While the Euro remained well up against the Pound due to bad Sterling sentiment across the board, it struggled against a majority of other pairings due it the Euro’s association with the Pound.
With British and EU trade now set to undergo a drastic set of changes that may take years to put in place, currencies across Europe suffered.
Euroscepticism was also on the rise following the announcement of the ‘Brexit’, with nationalist leaders from other European Union nations calling for EU Referendums in other countries and causing fears for the Euro’s future. The BBC reports;
‘France’s National Front leader Marine Le Pen said the French must now also have the right to choose.
Dutch anti-immigration politician Geert Wilders said the Netherlands deserved a “Nexit” vote while Italy’s Northern League said: “Now it’s our turn”.’
The European Central Bank (ECB) has also reacted to the ‘Brexit’ news, by reassuring markets that the central bank was ready to put new policies into place to help fend off market fallout.
Pound Euro Exchange Rate Forecast: ‘Brexit’ Cogs Begin to Turn
This week will be the first week Britain will experience as a nation set to leave the European Union. As a result, uncertainty and panic in relation to the Pound and the British economy will be in full focus.
Neither Prime Minister David Cameron, or ‘Leave’ campaign head Boris Johnson, are in a hurry to incite ‘Article 50’ of the EU and begin the leaving process immediately. EU officials have advised the UK to begin as soon as possible, however.
Speculation on who the UK’s new Prime Minister could be could head into full swing as July draws near, then only three months away until the new PM is expected to take up office.
A Scottish Referendum is also likely to take place within the two years it will take for Britain to leave the EU.
In the more immediate future, Sterling is likely to continue to drop. Some analysts have predicted that it could even reach parity with the Euro by the end of 2016.
Investors are also likely to keep an eye on the central banks. The Bank of England (BoE) and European Central Bank (ECB) are highly likely to introduce new policies in attempt to lighten the damage to European economies in the coming months.
The Euro is likely to recover relative strength compared to the Pound, but may see extended pressure due to now heightened Euroscepticism around the Eurozone.