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Pound Sterling to Euro Exchange Rate Climbs on Hopes for Post-Brexit UK Customs Deal

Pound to Euro Exchange Rate Struggles to Hold Best Levels amid Reports of Significant Negotiation Hurdles

When UK markets opened on Monday, the Pound Sterling to Euro (GBP/EUR) exchange rate had already had quite a busy morning as it reacted to some of the latest reports on the Brexit process.

GBP/EUR opened the week at the level of 1.1390 and briefly surged to a high of 1.1449, its best levels in almost a month. However, GBP/EUR failed to hold its best levels as further Brexit-related reports came in.

At the time of writing, GBP/EUR trended in the region of 1.1418

Demand for both the Pound (GBP) and the Euro (EUR) strengthened following a report in the Sunday Times, claiming that the UK government had secured a broad customs union agreement for the whole of the UK.

The Euro’s own reaction to the report limited Sterling’s gains, but the Pound did benefit the most out of the two.

Pound (GBP) Exchange Rate Surge Limited by Rival Strength, Reports of Remaining Hurdles

Reports that the UK had secured concessions from the EU regarding the issue of the Irish backstop helped both the Pound and the Euro to strengthen on Monday morning. This limited the Pound’s gains versus the Euro.

It followed last week’s reports claiming that a deal on UK financial services had been agreed.

However, Sterling strength was also limited by a separate report published on Monday morning. The Telegraph newspaper said that there were still significant hurdles remaining in Brexit negotiations despite hopes that concessions had been reached.

This reflected comments from EU officials, claiming that the UK’s chances of successfully reaching an Irish border deal were ’50-50’.

The reports that a deal on a customs union arrangement was denied by UK government officials too. According to a source from Downing Street:

‘We are not sitting on powder keg knowledge that we have signed a secret deal,

We are not on the cusp of some seismic shift.’

Overall, there were too many uncertainties remaining about the accuracy of the report to give the Pound a stronger boost.

Euro (EUR) Exchange Rate Strength Limited by Underwhelming Eurozone Data

While the Euro benefitted slightly from the latest Brexit speculation, the shared currency typically isn’t as strongly influenced by Brexit news compared to the Pound.

On top of this, the Euro remains unappealing following last week’s slew of underwhelming Eurozone ecostats.

Eurozone Gross Domestic Product (GDP) growth projections, as well as October manufacturing PMI stats, all fell well short of expectations last week.

The data indicated that the Eurozone’s growth outlook was slowing down towards the end of 2018, rather than remaining resilient.

Eurozone inflation beat forecasts last week, but this was not enough to stave off concerns about the Eurozone’s growth outlook.

Analysts are concerned that US trade protectionism is having a negative impact on the Eurozone’s economic activity.

Pound to Euro (GBP/EUR) Exchange Rate Investors Eagerly Await Brexit Developments

As November is underway and Brexit day is now less than five months away, markets are likely to become more and more focused on anticipating a Brexit deal until one is reached.

UK and EU officials have expressed hope that a Brexit deal is reached this month. The UK, in particular, wishes to reach an agreement in time to hold an emergency summit before the end of the month.

However, while markets bought the Pound in hopes that a deal was drawing nearer, many uncertainties remain regarding issues like the Irish border.

The Pound may not react much to upcoming UK data, as investors focus on potential Brexit developments.

Instead, the Euro may be more likely to drive GBP/EUR movement if upcoming Eurozone data surprises investors.

Tuesday will see the publication of the Eurozone’s final October services and composite PMI stats. These will be followed on Wednesday by Eurozone retail sales results from September.

German trade balance data on Thursday and UK growth projection data on Friday could cause some late-week movement in the Pound to Euro (GBP/EUR) exchange rate.