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Pound Sterling to Euro Exchange Rate Gains Limited as EU Recovery Fund Keeps Euro Buoyed

Pound to Euro Exchange Rate Advance Slows but Pair Remains Near Best

Update 16:45 BST 21/07/2020:

The Pound Sterling to Euro (GBP/EUR) exchange rate saw further gains today. Though the pair has only recovered around half of last week’s losses, it trended near a high of 1.1108 this afternoon.

Investors are hesitant to keep buying the pair even higher however.

While the Pound (GBP) is benefitting from market hopes for a UK coronavirus vaccine, it continues to be weighed by Brexit uncertainties.

Meanwhile, investors are hesitant to sell the Euro (EUR) too much either.

The shared currency’s outlook remains one of the best among major currencies. The outlook is even better following this week’s impressive EU Recovery Fund news.

(Originally published 09:00 BST 21/07/2020)

Pound to Euro Exchange Rate Up despite EU Recovery Fund Developments 

Despite EU leaders reaching a deal on a coronavirus recovery package even quicker than hoped, the Pound Sterling to Euro (GBP/EUR) exchange rate has been climbing since yesterday afternoon. The Pound (GBP) has been benefitting from various market optimism. 

After last week saw GBP/EUR tumble from 1.1175 to 1.0999, this week’s movement has been a fairly solid recovery thus far. 

GBP/EUR briefly dipped to a low of 1.0944 yesterday, the worst level for the pair all month. However, since then GBP/EUR has rebounded. The pair has regained around half of last week’s losses, and at the time of writing is trending in the region of 1.1091. 

Will the Pound’s current bullish movement last though? Unless there are optimistic signs on Brexit, the British currency’s weakness could return. 

Pound (GBP) Exchange Rates Get a Boost from Coronavirus and Brexit Hopes 

Britain’s economic and coronavirus outlooks have recently been filled with gloom and concern. Data has indicated that Britain’s economy is not weathering the pandemic as well as hoped, and the UK government’s approach to the pandemic continues to confuse analysts. 

However, despite this the Pound saw a rebound in demand yesterday. 

Investors bought the Pound back from its lowest levels. It was due partially to profit-taking, but fresh developments regarding the coronavirus and Brexit situations also helped. 

Sterling was able to benefit from news that some British companies were making progress on a coronavirus vaccine. 

Fresh speculation that there could still be a Brexit deal before October also supported the Pound’s recovery attempts. German Foreign Minister Heiko Maas said today that while an agreement by October would be ambitious, it was still within possibility. 

Euro (EUR) Exchange Rate Losses Limited as EU Leaders Agree to Deal 

In a shock to markets, EU leaders were able to fast track an agreement to a major recovery fund after a days long EU Summit over the weekend. 

The summit, originally expected to take place over three days, was extended as leaders believed that a deal was within reach. 

Though analysts did not expect a deal to be reached just yet, an EU Recovery Fund was indeed agreed. 

Still, while the deal being made so quickly was a surprise to investors, the deal’s likelihood was overall already priced in to the Euro. The Euro has seen weeks of strong performance due to hopes of a recovery fund agreement. 

According to Christopher Wong, Senior FX Strategist at Maybank: 

‘The deal is a positive, a show of solidarity, securing a stronger economic recovery, 

Markets-wise, the positive news was already priced in,’ 

Pound to Euro (GBP/EUR) Exchange Rate Could Climb on Positive Brexit News 

The Pound has seen a limited rise in demand on hopes that a Brexit deal could be reached by October. It could keep climbing if these hopes rise further. 

As July heads toward its end, markets have all but lost hope for the Brexit transition period to be extended. 

If there is no sign of any solid or positive Brexit developments though, the Pound could shed some of its recent gains instead. 

The coming sessions will be fairly light on UK data as well, leaving Brexit and domestic coronavirus developments in focus for Sterling. 

As for the Euro, it could be influenced by lasting reaction to the EU Recovery Fund agreement, as well as further details over what the agreement entails. 

Tomorrow’s comments from European Central Bank (ECB) Vice-President Luis de Guindos could also influence the Pound to Euro (GBP/EUR) exchange rate.