Pound Sterling Euro (GBP/EUR) Exchange Rate Sluggish as Markets Await Brexit ‘Plan B’
Ahead of the unveiling of Theresa May’s Brexit ‘Plan B’ the Pound Sterling to Euro (GBP/EUR) exchange rate struggled to find any particular momentum.
After the decisive defeat of May’s original proposal the hopes for an alternative are not high, with the current parliamentary deadlock looking set to persist for some time to come.
With EU leaders rejecting the possibility of reopening talks on the subject of the controversial Irish backstop agreement May’s options to alter her deal appear limited.
The ongoing sense of uncertainty over Brexit remains a significant drag on the GBP/EUR exchange rate as worries over the future of the UK economy continue to grow.
Until there is some sign of a breakthrough the appeal of the Pound is unlikely to materially improve.
Even so, if the odds of a no-deal Brexit do not pick up in the days ahead this could encourage a more optimistic GBP outlook.
Pound Sterling (GBP) Exchange Rates Look for Support from Solid Wage Growth
GBP exchange rates could find a temporary rallying point on the back of November’s UK average weekly earnings data, however.
Forecasts point towards a sustained 3.3% acceleration in earnings excluding bonuses, extending the gap between earnings and the inflation rate.
Evidence that wage growth is continuing to pick up may encourage greater confidence in the outlook of the UK economy, even amidst the ongoing uncertainty over Brexit.
If wage growth strengthens further the mood towards the Pound is likely to improve, especially if the corresponding employment data also shows an increase on the month.
While even a strong increase in wages is unlikely to be enough to incentivise the Bank of England (BoE) to raise interest rates this could still give the GBP/EUR exchange rate a solid boost in the short term.
ECB Announcement to Weigh on Euro (EUR) Exchange Rates
Confidence in the Euro (EUR), meanwhile, could weaken over the course of the week as markets brace for the latest European Central Bank (ECB) policy announcement.
Although the central bank looks set to leave monetary policy on hold in the months ahead the meeting could still provoke EUR exchange rate volatility.
If ECB policymakers appear to lean towards a more dovish outlook the mood towards the single currency may deteriorate sharply.
Signs of greater optimism in the economic outlook, however, may encourage investors to favour the Euro over its rivals on Thursday.
January’s raft of Eurozone manufacturing and services PMIs are also forecast to provoke volatility for the GBP/EUR exchange rate in the near future.
Evidence that the Eurozone economy started 2019 on a weaker footing, losing further momentum after a disappointing 2018, may put significant pressure on the Euro.