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Pound Sterling to Euro Exchange Rate Loses Election Gains as Brexit Outlook Sees New Shock

Pound to Euro Exchange Rate Trends Below Last Week’s Opening Levels

Despite today’s stronger than expected UK job market stats, the Pound Sterling to Euro (GBP/EUR) exchange rate has once again been overshadowed by political and Brexit developments. A hard Brexit stance from UK Prime Minister Boris Johnson shocked markets today.

Last week saw GBP/EUR open at the level of 1.1878 and jump higher at the end of the week. Thanks to the General Election results being seen as Pound-positive, GBP/EUR briefly touched on a three year high of 1.2076 before closing the week near the level of 1.1990.

However, Sterling (GBP) adjusted its position lower yesterday while the Euro (EUR) enjoyed resilient demand.

Today the Pound slumped though, and at the time of writing GBP/EUR was trending below last week’s opening levels, in the region of 1.1834.

Due to rival weakness, the Euro is one of the stronger major currencies today and this is pushing the Pound to Euro exchange rate even lower.

Pound (GBP) Exchange Rates Plunge as Boris Johnson Revives No-Deal Brexit Fears

Last week’s UK General Election ended with a strong majority for Prime Minister Boris Johnson’s Brexit Party, which led to much stronger demand for the Pound (GBP).

Investors bet that a Conservative majority would make a softer Brexit more likely and diminish the chances of a no-deal outcome.

However, after weeks of hopes for a softer Brexit, could today’s news have scuppered those hopes?

Reports emerged today saying that Johnson was planning to outlaw further delay of the Brexit transition period, which is currently set to end at the end of 2020.

If no UK-EU deals are negotiated by then, it could mean a hard Brexit and World Trade Organisation (WTO) trade rules for UK-EU relations.

The news took investors by surprise following days of optimism over Brexit. Kit Juckes, Forex Analyst at Societe Generale, said:

‘Those who thought that a big majority would free the PM to take a patient approach to negotiate the best possible deal, have been caught by surprise. And that’s most UK economists and strategists. Ho hum.’

Euro (EUR) Exchange Rates Benefit from Rival Weakness

Despite a lack fresh supportive news for the Euro, the shared currency was one of the market’s stronger major currencies today. The Euro saw significant gains against the slumping Pound.

The Euro’s strength was due largely to weakness in rivals, including the Pound’s fresh losses on Brexit jitters.

Continued weakness in the US Dollar (USD) amid poor US data and Federal Reserve rate cut speculation also notably boosted Euro demand. The US Dollar is the Euro’s biggest rival.

Euro demand has remained fairly steady despite yesterday’s German and Eurozone manufacturing PMIs falling short of expectations.

The shared currency may have found a little extra support in today’s Eurozone trade report, which saw the trade surplus unexpectedly jump to €28b.

Pound to Euro (GBP/EUR) Exchange Rate Outlook Limited by Looming Brexit Fear

With major Bank of England (BoE) news expected in the coming days, the Pound to Euro (GBP/EUR) exchange rate was initially going to be focused more on data and economic news.

However, the latest Brexit shock from UK Prime Minister Boris Johnson has overshadowed the Pound outlook and will likely keep Brexit in focus instead.

Any shifts in stance from the government over the transition period being extended would have a significant impact on Sterling, but if the government maintains its seemingly hard stance then the Pound could be in for deeper losses.

Due to Brexit jitters, tomorrow’s UK inflation data and Thursday’s Bank of England news may not be too influential for the Pound.

The Euro, on the other hand, will continue to be driven by strength in rivals like the Pound and US Dollar (USD).

Tomorrow’s Eurozone inflation rate and German business confidence data could also influence the Pound to Euro (GBP/EUR) exchange rate if they surprise investors.