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Pound Euro (GBP/EUR) Exchange Rate Forecast to Extend Slump as EU Pushes Back on Brexit

Euro Currency Forecast

Pound Euro (GBP/EUR) Exchange Rate Falters on Leaked EU Brexit Document

Although the Halifax house price index bettered forecast in February this was not enough to boost the Pound to Euro (GBP/EUR) exchange rate, still representing a five-year low.

Demand for the Pound (GBP) remains rather weak thanks to lingering worries over the state of Brexit negotiations, with the EU and UK still looking as at odds with each other as ever.

An internal EU document noted that Theresa May’s recent speech offered ‘a change in tone, but not in substance’, indicating that little progress has been made towards a compromise.

This suggests that, with little more than a year to go before the exit deadline of March 2019, the prospect of a satisfactory post-Brexit trade deal remains rather distant.

Unless there are signs of material progress on key Brexit issues in the weeks ahead the mood of GBP exchange rates is likely to remain decidedly bearish in nature.

Euro Exchange Rates Shrug Off Trade War Fears Ahead of ECB Meeting

While the Trump administration looks set to push ahead with blanket tariffs on steel and aluminium this failed to offer any particular support to the GBP/EUR exchange rate on Wednesday morning.

Even with the threat of a global trade war looming large the Euro (EUR) held onto some of its strength, in spite of the negative implications for Eurozone growth.

Given the solid underlying strength of the currency union’s economy, though, EUR exchange rates saw limited weakness at this juncture.

Confirmation that the Eurozone gross domestic product had slowed from 0.7% to 0.6% in the fourth quarter did little to shift the Euro, with the result already largely priced in by investors.

As Viraj Patel, research analyst at ING, noted:

‘We suspect that it is future EZ growth that will be of greater concern for the ECB – not least given the likely headwinds that would manifest from any US-led global protectionist shift. We may hear more from President Draghi on this at tomorrow’s meeting.’

If European Central Bank (ECB) President Mario Draghi opts to take a more dovish stance at the March policy meeting this could benefit the GBP/EUR exchange rate.

Narrowed UK Trade Deficit Forecast to Support GBP/EUR Exchange Rate

Even though Brexit developments are likely to remain the key headwind for the GBP/EUR exchange rate the pairing could still rally ahead of the weekend if UK data impresses.

As forecasts point towards a narrowing of January’s visible trade deficit and a solid rebound in industrial production this may boost confidence in the domestic outlook.

However, investors also expect to see a dip in the NIESR gross domestic product estimate for the three months to February.

Any signs that the economy is losing momentum could well see the GBP/EUR exchange rate extend its recent losses further, with Brexit-based uncertainty forecast to weigh on growth in the coming months.

If growth holds steady at 0.5%, though, the Pound may find some degree of support in the short term.