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Pound Sterling to Euro Exchange Rate Losses Limited as Eurozone Manufacturing Shocks Markets

Pound to Euro Exchange Rate Rebounds as No-Deal Brexit Fears Find a Little Relief

For most of the past week, the Pound Sterling to Euro (GBP/EUR) exchange rate tumbled on revived no-deal Brexit fears and Eurozone economic hopes. Today though, the pair saw a little relief that helped it avoid its worst levels.

After opening the week at the level of 1.1739, GBP/EUR tumbled as Brexit uncertainties flared up and the pair briefly hit a fresh one-month-low of 1.1475 yesterday.

However, GBP/EUR could still avoid shedding all of the previous week’s losses. GBP/EUR trends closer to the level of 1.1625 at the time of writing, rebounding strongly today thanks to some fresh Brexit hope as well as some highly disappointing Eurozone data.

The Brexit outlook has shifted significantly this week, with the uncertainty and chaos causing broad volatility in the Pound (GBP). This is likely to continue into next week, when the issue of the Brexit delay will be decided.

Pound (GBP) Exchange Rates Rebound amid Respite in No-Deal Brexit Panic

Yesterday saw the Pound plummeting across the board, as the EU appeared to firmly state that if UK Parliament does not pass the government’s Brexit deal by the end of next week it would lead to no Brexit delay – and a no-deal Brexit next Friday.

The government’s Brexit deal is still widely perceived as lacking in support, so investors became highly anxious that the UK could crash out of the EU with a worst-case no-deal scenario in a week’s time.

As a result, markets were relieved when the EU confirmed last night that it would still offer a short two-week delay on Brexit even if the deal is blocked again. This helped the Pound to recover slightly at the end of the week.

The government allegedly intends to hold its third Parliamentary meaningful vote on its Brexit plan next week.

According to analysts from Goldman Sachs:

‘By postponing Brexit day by at least a fortnight, the UK and the EU have kept all options in play, for now,’

Euro (EUR) Exchange Rates Slump as Eurozone Manufacturing Contracts

Hopes that the Eurozone’s economic activity had taken a turn for the more positive were doused this morning, as the Eurozone’s latest manufacturing PMI projections from Markit indicated that the Eurozone’s manufacturing sector was still performing much worse than expected this month.

French manufacturing unexpectedly contracted, falling to 49.8, while Germany’s contraction was even deeper than expected at 44.7 rather than the forecast 48.

Overall, the Eurozone’s manufacturing PMI came in with a lower than expected 47.6 and the overall composite PMI projection printed with a disappointing 51.3, supported the bloc’s services sector.

According to Chris Williamson, Chief Economist at Markit, who compiles the report:

‘A rebound in February from one-off factors such as the yellow vest protests in France appears to have already lost momentum. Most worrying is the plight of the manufacturing sector, which is now in its deepest downturn since 2013 as trade flows contracted at the sharpest rate since the debt crisis-ridden days of 2012.’

Pound to Euro (GBP/EUR) Exchange Rate Investors Gear Up for More Brexit Chaos

Some influential Eurozone data is due for publication next week, and following this week’s disappointing Eurozone manufacturing data it could offer the Euro some much-needed support if it beats expectations.

Ifo’s German business confidence stats will come in on Monday, with GfK’s German consumer confidence following on Tuesday.

Overall Eurozone confidence data, as well as German retail and inflation figures, will be published in the second half of the week.

While these stats are likely to cause some movement in the Euro though, the Pound to Euro exchange rate is most likely to be driven by how the Brexit process develops over the next week.

Will the UK government’s third meaningful Parliament vote on Brexit go ahead? Will it succeed this time, or be blocked once again? The outcomes will decide how long the Brexit process is delayed for, and what could begin to happen with the process next.

Analysts still predict that the government’s Brexit plan lacks the domestic support to pass Parliament.

There is speculation that UK Parliament could seek ‘indicative votes’ as a way forward for Brexit if the plan is blocked again.

Either way, if the vote is blocked again it will only give the UK two weeks to change course before the next Brexit date of the 12th of April – so the Pound to Euro (GBP/EUR) exchange rate’s volatile performance is likely to continue in the coming weeks.