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Pound Euro Exchange Rate Forecast: Sterling Back to 1.19 on Brexit Recession Fears

EUR exchange rate forecast

  • Pound Euro Exchange Rate Reaches 1.2150 – Half-way recovered to the week’s opening levels
  • Sterling Buoyed on Calmer Markets – But EU leaders hint at no compromises with Brexit deals
  • Update: Pound Plummets Below 1.20 on Carney Comments – BoE Governor hints at easing measures
  • Forecast: Who Will Run for UK PM? – Stephen Crabb confirmed to be in the running
  • Forecast: Key Eurozone Data Due Today – German labour and EU CPI unlikely to influence Euro

GBP EUR Slumps to 1.19 on Friday

After Bank of England (BoE) Governor Mark Carney asserted that the central bank would be unleashing more stimulus in order to support the UK economy during the Brexit uncertainty, the Pound lost previous gains against the Euro.

The GBP EUR exchange rate softened further, slumping back to 1.19, as the EU Trade Commissioner asserted that there would be no trade talks until the UK had exited from the European Union.

The Pound held losses despite the UK’s Manufacturing PMI printing more strongly-than-expected.

The gauge of the UK’s manufacturing sector climbed to a five-month high ahead of the referendum, although it is expected that the rate of output will fall back again in light of the UK’s decision to Brexit.

(Previously updated 30/6/2016)

Pound Euro Exchange Rate Extends Losses Thursday

While the Pound Euro exchange rate had recovered slightly throughout Tuesday and Wednesday, the pair dropped below 1.20 once again on Thursday afternoon in response to the latest BoE comments.

Bank of England (BoE) Governor Mark Carney indicated on Thursday that the central bank could introduce new easing measures for the UK as soon as its next policy meeting on the 14th of July.

Investors lost confidence in the Pound as a result, especially as hopes that a second EU referendum was still possible waned considerably.

With the European Central Bank (ECB) still relatively quiet since the Brexit result, investors still hope that the Eurozone economy has not been too badly affected.

(Previously updated 12:40 30/06/2016)

The Pound Euro exchange rate advanced to 1.2150 on Wednesday as optimistic investors clung to hopes that whoever becomes Prime Minister will not invoke Article 50 and trigger the UK’s removal from the European Union.

However, the pairing is forecast to continue its large-scale fluctuations and attempts to recover in the coming days as investors continue to purchase Sterling from its cheapest levels, following the bearish Brexit drop last week.

GBP/EUR edged higher still during Wednesday’s European session, gaining almost 1% at one point in the afternoon. At the time of writing, the pair was trending in the region of 1.2170. GBP/EUR had briefly fallen below 1.20 on Monday, but on Wednesday appeared to have recovered half-way to the week’s opening levels of 1.23.

Although the majority of economists have forecast a reversal in Sterling strength as the formal negotiations to Brexit from the European Union get underway, for now the Pound appears to have stabilised. The currency was also able to gain on the US Dollar, Australian Dollar, New Zealand Dollar and Canadian Dollar.

It doesn’t currently look as though Article 50 will be invoked until a new Prime Minister comes to power, but with Boris Johnson indicating his intention to bow out of the race, who our new PM will be remains the key question.

Pound Sterling (GBP) Exchange Rate Treks Higher on Relief Rally

The Pound recovered for a second time during Wednesday trade, reaching its highest levels since Monday, when the Pound was still in free-fall from news that the UK would Brexit from the EU.

Investors appeared to quite comfortably buy into Sterling during a rally that most attribute to markets profit-taking from the Pound’s lows. BBC reports;

‘Big sell-offs present buying opportunities, and are therefore often followed by rises as investors look for bargains. …

Exporting companies are also helped by a weaker currency as their products tend to become more competitive.

And for any businesses that earn revenues in dollars – such as some pharmaceutical and oil companies – a decline in sterling is positive for profits.

In uncertain times, price discovery can be a tricky business.’

Uncertainty is the name of the game here, and investors have used this uncertainty as an opportunity for relief.

While uncertainty means no definitive good news, it also means no definitive bad news. As a result, markets had been left to readjust and fluctuate between Tuesday and Wednesday.

Negotiations between Britain and the EU appear to be largely stagnant. While UK Prime Minister David Cameron has been given the consensus that the UK is not being rushed into activating Article 50.

It has also been widely implied by MEPs that the UK will not be able to negotiate its Brexit position at all until Article 50 has been incited. As a result, Sterling remains under constant pressure.

Euro (EUR) Sentiment Shaken by Eurozone Concerns

The Euro has not recovered as considerably as the Pound as throughout Tuesday and Wednesday, as its Friday and Monday plummets were relatively light compared to what Sterling had endured.

That said, it was still able to recover against some safer currencies as markets indulged on profit taking from the lows that Brexit-hit currencies had felt.

Sentiment towards the Euro remained weak however, as speculation on a damaged future of the European Union and the Eurozone continued.

With a Brexit merely an Article 50 away from being reality, Euroscepticism has increased across the bloc, making analysts call into question the future of the Euro.

The Euro is also likely to have been weighed down by news that Eurozone bond yields have continued to fall this week, as well as the expectation of rate cuts in central banks, as reported by Reuters;

‘Southern Europe’s borrowing costs fell sharply for a third straight day and French bond yields hit record lows on Wednesday, as expectations grow that central banks will act to shore up confidence and the economy after Britain’s Brexit vote. …

Yields on Germany’s top-rated bonds were a tad higher but within range of last week’s record lows as the uncertainty triggered by British voters’ decision to leave the European Union kept safe-haven debt in demand.’

Pound Euro Exchange Rate Forecast: Data Unlikely to Influence Movement

With investors still moving largely in unison after last week’s Brexit news sent shockwaves across markets, domestic data is currently unlikely to inspire movement with Brexit-related news taking centre stage.

Thursday’s session sees the release of June’s German unemployment figures, as well as the Eurozone’s latest June Consumer Price Index (CPI) estimates.

However, these figures have the potential to be influenced by Brexit-related shock in the coming months and as a result markets are unlikely to focus too heavily on them.

Markets are also likely to continue to speculate whether or not central banks will introduce new easing measures or stimulus.

Sources told Reuters on Wednesday that the ECB was not in a rush to ease policies as markets had been calmer-than-feared, but many investors will likely not react to this news until ECB policymakers speak. If true, the Euro could gain against the Pound once more.

Sterling has the possibility of falling further if news from Britain’s political parties shocks investors, or if the Conservative party gives a stronger indication of when it intends to activate Article 50 and begin the formal process of EU withdrawal.

For the time being however, the Pound Euro exchange rate is likely to adjust and fluctuate as markets attempt to find an appropriate value for Sterling amid recent Brexit news.