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Month and a Half Worst for Euro to Pound Sterling Exchange Rate on Fresh Brexit Deal Hopes

Euro to Pound Exchange Rate Struggles to Recover as Coronavirus Jitters Weigh 

While the Euro (EUR) has been benefitting from rival weakness for half the week, the Euro to Pound Sterling (EUR/GBP) exchange rate tumbled yesterday. It comes as the Pound (GBP) surges higher on Brexit hopes, but Eurozone coronavirus jitters weigh as well. 

EUR/GBP movement has been fairly narrow in recent weeks. Last week for example, EUR/GBP fluctuated within a relatively narrow region, opening and closing the week near the level of 0.9070. 

This week’s movement has been far more volatile so far though. Earlier in the week, EUR/GBP touched on a high of 0.9147 – the best level for the pair since the end of September. 

However, after tumbling yesterday, EUR/GBP fell to a low of 0.9012. This was the lowest level for EUR/GBP since the beginning of September, and the pair continues to trend near those lows at the time of writing on Thursday. 

Euro (EUR) Exchange Rates Pressured as Eurozone’s Coronavirus Situation Worsens 

After months of uncertainty, the coronavirus pandemic is seeing a forceful second wave across the globe. Many major economies are being throttled by the new surge in infections, with many restrictions now expected to last through the holiday season. 

The pandemic has seen surging infections in major Eurozone economies in recent weeks. This is keeping markets anxious about the Eurozone’s economic outlook, and limiting the Euro’s appeal. 

After months of performing strongly in reaction to weakness in rivals like the Pound and US Dollar (USD), the Euro’s potential for gains is capped today. 

According to Analysts at Westpac: 

‘Although ECB members have indicated through this week that there is unlikely to be any change in their policy stance at next week’s ECB meeting, there has also been an increasing sense of concern over the persistently rising COVID-19 case counts, not just in Spain and France but also Italy, Germany and across the Eurozone. Increasing curfews and restrictions will put pressure on the region’s recovery.’ 

Pound (GBP) Exchange Rates Slip Back after Yesterday’s Jump 

Yesterday saw the Pound surge across the board, on fresh Brexit optimism. Investors were reassured by news that UK negotiators had agreed to another round of Brexit negotiations after all. 

Mere days after saying it would walk away from negotiations, UK officials were reportedly interested in comments from EU Brexit Negotiator Michel Barnier that a deal was ‘within reach’. 

As negotiations officially resume, markets are more optimistic that both sides are eager to reach a deal. UK and EU negotiators expect a deal by mid-November. 

Sterling slipped back from its highs this morning. This is largely due to markets adjusting positions after yesterday’s rally. According to Joe Tuckley, Analyst at Argentex: 

‘News that post-Brexit trade talks between the UK and European Union will resume is likely to encourage a continuation of the volatile Sterling trading patterns we have seen on the back of recent news headline flow.’ 

Euro to Pound (EUR/GBP) Exchange Rate Could Fall on Brexit Optimism 

The Euro to Pound exchange rate has the potential to see further losses in the coming weeks, as markets await the climax of the Brexit process. 

Through until the middle of November, UK-EU Brexit negotiators are generally expected to take talks right up to the finish line. Sterling will remain volatile as markets wait to hear what the future relationship between the two nations could be like. 

Hopes of a deal are rising. This could mean more gains for the Pound in the coming weeks, especially if deal optimism rises further. 

On the other hand though, talks collapsing again or the final inability to reach a deal could cause the Pound (GBP) to plummet and shed much recent gains. 

As for the Euro, it is less likely than Sterling to influence EUR/GBP movement in the coming sessions. 

Investors will be closely watching tomorrow’s Eurozone PMI projections for signs of how the Eurozone’s economy is weathering the coronavirus second wave. If these stats surprise investors they could influence the Euro outlook. 

Late week UK coronavirus developments and UK PMI projections could also influence the Euro to Pound (EUR/GBP exchange rate.