Pound to Euro Exchange Rate hits Month-Worst ahead of Next Week’s Key Data
The Pound to Euro (GBP/EUR) exchange rate has seen significant losses this week. Brexit fears are returning, throttling the Pound (GBP), while the Euro (EUR) benefits from rival weakness and signs of strength in the Eurozone outlook.
Since opening this week at the level of 1.1945, GBP/EUR has trended with a largely downside bias. GBP/EUR held its ground earlier in the week, but in the middle of the week plummeted on fresh Brexit jitters.
At the time of writing on Friday, GBP/EUR is trending near a low of 1.1673. This is the worst level for GBP/EUR since the first half of January – over a month ago.
In fact, this week alone has seen GBP/EUR lose most of the gains it has made since the beginning of the year. Pound investors are increasingly anxious about the possibility of a hard Brexit ahead of next week’s UK-EU negotiations.
Pound (GBP) Exchange Rates Pummelled by Brexit Jitters and Other Factors
This week has been a heavily bearish week for the Pound (GBP).
Fears of a cliff-edge scenario hard Brexit returned in full force. It came as the UK government’s negotiation mandate hinted that the government could walk away from talks as early as June.
The government threatened that if it is unhappy with talks, it could willingly walk away with no-deal.
On top of this though, the Pound is seeing pressure from market concerns that Britain’s economic growth will not see a strong rebound as previously hoped.
Britain’s new Chancellor, Rishi Sunak, is speculated to be unable to up government spending in the upcoming budget as much as previously hoped.
There are also rising fears that the coronavirus could hit Britain’s economy. Airline companies are cutting growth outlooks, and outgoing Bank of England (BoE) Governor Mark Carney has also said the virus poses a risk.
Euro (EUR) Exchange Rates Surging as it Benefits from Rival Weakness
The Pound is one of the Euro’s biggest rivals, alongside the US Dollar (USD). With both GBP and USD slumping this week, EUR exchange rates are soaring as the shared currency gains on rival losses.
In fact, due to this movement and some stronger than expected Eurozone confidence stats yesterday, the Euro had one of its best days in years.
This was partially due to speculation that US interest rates had a lot of room to fall, meaning Federal Reserve rate cuts were much more likely than European Central Bank (ECB) ones.
According to Thu Lan Nguyen, Analyst at Commerzbank:
‘Rate cut expectations have gained momentum and US rate expectations are falling a lot more than they are in the Eurozone,’
This morning’s Eurozone data has failed to put a dent in this week’s strong Euro performance. French growth and inflation were generally unsurprising, and German unemployment was slightly better than expected.
Pound to Euro (GBP/EUR) Exchange Rate Outlook in for Continued Weakness amid Brexit Fear
Next week will see the publication of numerous key ecostats from both the UK and the Eurozone. However, unless the Eurozone data is disappointing the Pound to Euro exchange rate is unlikely to see much gains.
Brexit negotiations which are expected to last throughout the year will finally begin next week. Pound investors are once again very anxious about UK-EU relations ahead of the talks.
With both UK and EU officials maintaining tough stances, the Pound could see continued weakness amid returning hard Brexit fears.
However, the Pound could see some stronger demand if officials show any unexpected signs of optimism on negotiations.
As for the Euro, it will likely continue to be driven by shifts in rival strength. If the Pound and US Dollar (USD) continue to weaken on Brexit and coronavirus fears the Euro may remain comparatively more appealing.
On the other hand though, if upcoming Eurozone data including unemployment, inflation and PMI results disappoint then Eurozone growth hopes could fade. This could give the Pound to Euro (GBP/EUR) exchange rate a better chance to advance.
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