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Euro to Pound Sterling Exchange Rate Unlikely to Shed Gains without Solid Brexit Optimism

Euro to Pound Exchange Rate Avoids Major Losses Despite Article 50 Speculation

Despite a lack of fresh support for the Euro (EUR), the Euro to Pound Sterling (EUR/GBP) exchange rate still avoided notable losses during Tuesday’s European session as Brexit jitters continued to weigh heavily on the Pound (GBP).

If Brexit concerns keep pressure on the Pound all week, EUR/GBP may be on track for another week of losses. EUR/GBP opened this week at the level of 0.8877 and has thus far gained around half a penny.

EUR/GBP touched on a two month high of 0.8939 on Tuesday morning, before dipping slightly. Towards the end of Tuesday’s European session, EUR/GBP still trended above the level of 0.89.

The Euro has continued to benefit from broad weakness in its rival, the US Dollar (USD), which the shared currency is negatively correlated with. The Pound, on the other hand, briefly gained on fresh Brexit speculation before persistent uncertainties put a lid on gains.

Euro (EUR) Exchange Rates Benefit from Weakness in Rivals

Rather than any kind of domestic support or outlook making the Euro appealing, the shared currency was largely bought after being favoured over its rivals on Tuesday.

On top of the Pound’s Brexit uncertainty-driven weakness, investors bought the Euro as markets sold its rival, the US Dollar (USD). The two major currencies often see a negative correlation.

Since markets opened for the week, investors have been selling the safe haven US Dollar (USD) and have been happier to take risks due to news that the US and China had announced a 90 day trade truce.

The US Dollar’s weakness only extended on Tuesday when 5-year US Treasury yields fell, indicating the US economy was expected to slow in the coming years.

This made it easier for the Euro to advance on Tuesday, despite this week’s data so far indicating that the Eurozone’s economy is continuing to slow into 2019.

Pound (GBP) Exchange Rates Fail to Capitalise on Article 50 Speculation

On Tuesday, the Pound briefly saw a surge in demand as investors reacted to comments from European Court of Justice (ECJ) Manuel Campos Sanchez-Bordona.

Sanchez-Bordona suggested that he believed the UK would be able to revoke Article 50 and cancel Brexit unilaterally – without the necessary agreement of other EU members.

While bets of a second EU referendum or the possibility of there being ‘no Brexit’ are low, this speculation briefly led to a stronger Pound. Following the comments, Jordan Rochester from Nomura International Plc. said:

‘Sterling had been trading on the soft side due to concerns about the vote and how Labour plan to table a vote of no confidence if or when it falls through. This doesn’t change that, but the market had gotten overly short.’

As the news ultimately didn’t change the Pound outlook, the British currency slipped again later in the session. Sterling has been unappealing amid uncertainty over how UK Parliament will vote on the UK government’s negotiated Brexit deal.

Euro to Pound (EUR/GBP) Exchange Rate Forecast to Firm if Eurozone Data Impresses

The Euro to Pound (EUR/GBP) exchange rate has climbed so far this week, but the Euro outlook remains limited amid a lack of supportive Eurozone data.

As a result, if upcoming Eurozone ecostats impress investors the Euro to Pound exchange rate could more easily sustain this week’s gains.

Major Eurozone data will be published today, including the bloc’s final November services and composite PMI results, as well as October retail sales figures.

If Eurozone PMIs or retail stats beat expectations, the Euro could see firmer trade and EUR/GBP would be more likely to end the week higher.

UK services PMI data from November will be published today too. This print is typically influential and could cause some Sterling movement today, but overall Brexit uncertainties are likely to keep a lid on the potential for Pound gains.

Sterling investors will be focused on potential shifts in the domestic popularity of the negotiated UK-EU Brexit deal, as well the perceived stability of UK Prime Minister Theresa May’s government.

Looking ahead, key Eurozone growth projections on Friday and of course next week’s UK Parliament votes are likely to have an influence on the Euro to Pound (EUR/GBP) exchange rate outlook.