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Brexit and PMI Uncertainty Dampening Pound Sterling to Euro Exchange Rate Outlook

Pound to Euro Exchange Rate Jumps on US Dollar Weakness

Updated 16:45 BST 18/08/2020:

Investors piled into the Pound (GBP) on Tuesday afternoon, as a new round of UK-EU Brexit negotiations begun. The Pound to Euro (GBP/EUR) exchange rate trended around the level of 1.1088 at the time of writing.

The Pound climbed mainly in reaction to broad weakness in the US Dollar (USD). Concerns about the US outlook simply left Sterling more appealing in comparison, while the Euro (EUR) has already benefitted from US Dollar weakness for months.

According to Strategists at ING though, the Pound’s strength could weaken again as Brexit returns to focus:

‘Sterling’s recent good performance and resilience to grim economic data has likely relied on the Brexit story being put on the backburner by investors,

We see a non-negligible risk of markets starting to price back in a no-deal outcome,’

(Originally published 11:46 BST 18/08/2020)

Pound to Euro Exchange Rate Lacks Drive as Markets Await Developments 

With investors hesitant to keep buying the already strong Euro (EUR), the Pound Sterling to Euro (GBP/EUR) exchange rate has been increasingly flat since last week. This morning’s attempts at a rebound were short-lived and investors now await upcoming Brexit talks. 

Last week saw GBP/EUR briefly jump from the level of 1.1076 to a high of 1.1146 – the pair’s best level in around a month. However after touching this high, GBP/EUR tumbled again and closed the week at the level of 1.1050. 

This week’s movement has been even narrower so far. GBP/EUR briefly slipped to an August low of 1.1027 yesterday. At the time of writing though, GBP/EUR is trending closer to the week’s opening levels again. 

As well as Brexit negotiations, investors are awaiting key PMI data due towards the end of the week. 

Pound (GBP) Exchange Rates Steady as Markets Await Latest Brexit Talks 

While the coronavirus pandemic continues to dominate global headlines, Brexit uncertainties continue to hold significant sway over the Pound (GBP) outlook. 

With 2020 heading quickly towards its final quarter with no notable developments in UK-EU Brexit negotiations all year, fears of a no-deal outcome to Brexit continue to dampen Britain’s economic outlook and Sterling. 

Markets are of course hoping for there to be some kind of progress in this week’s negotiations. The latest round of talks begin today and last through the week. Anticipation is helping Sterling to firm a little higher today. 

Still, the UK outlook remains gloomy overall. Markets remain anxious over how Britain’s economy is weathering the coronavirus pandemic, with major store chains seeing thousands of lost jobs. 

Euro (EUR) Exchange Rates Continue to Benefit from Rival Weakness 

Despite a lack of fresh support in recent sessions, the Euro (EUR) remains to be one of the more appealing major currencies on the market. 

In recent months, the Euro outlook has been strong. This is due to the EU’s effective handling of the coronavirus pandemic. Even as coronavirus cases rise in Spain and Germany, the Eurozone outlook is comparatively more optimistic than the US outlook. 

In particular, the Euro is still benefitting from continued weakness in its biggest rival, the US Dollar (USD). According to Neil Jones, Head of Hedge Fund Sales at Mizuho: 

‘There’s a sufficient amount of momentum and a positive sentiment as well for the Euro, so I would suggest that there is a lot more going on in Euro/Dollar.’ 

Pound to Euro (GBP/EUR) Exchange Rate Awaits Brexit Developments and Data 

The Pound to Euro exchange rate is fairly limp this week so far, but this steady narrow movement could shift if upcoming developments influence currency outlooks. 

Perhaps the biggest focus of the week for Pound investors will be the latest round of UK-EU Brexit negotiations. August talks are set to begin today and will last through the week. 

Pound investors will be keeping a close eye on the tone of talks. If there is any fresh indication that a post-Brexit deal is becoming more possible, the Pound could see stronger demand. 

On the other hand though, if there are no notable developments the Pound outlook will remain gloomy and unappealing. 

Tomorrow’s UK inflation data is unlikely to be particularly influential. The Euro is likely to be driven more by coronavirus developments and market sentiment throughout the week. 

The Euro outlook could shift at the end of the week though, if Friday’s Eurozone PMI projections surprise investors. UK PMI projections due Friday could also influence the Pound to Euro (GBP/EUR) exchange rate outlook if they surprise. 

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