Euro Exchange Rate Forecast: GBP/EUR Could be Headed for Six-Month High on Brexit Divorce Bill Speculation

GBP/EUR Update: Brexit Divorce Bill Speculation Boosts Pound Sterling to Euro Exchange Rate

The Pound to Euro exchange rate rallied by around 250 pips last week due to increased hopes that Britain will be able to avoid a disorderly exit from the European Union.

Sterling spiked versus the single currency last Tuesday following reports that UK Prime Minister Theresa May had gained permission from the Conservative party to raise Britain’s Brexit divorce offer from £20 billion to around £50 billion.

The news was seen to increase the possibility that EU officials will allow Britain to begin negotiating the future terms of trade between the UK and the EU.

Four-Year High UK Manufacturing Supports GBP Exchange Rates

The Pound also benefitted from a four-year high UK manufacturing PMI score of 58.2, which outpaced expectations of 56.5 and was seen to bode well for factory growth in the New Year.

Eurozone unemployment dropped to a nine-year low of 8.8%, but demand for the Euro was hit by a lower-than-forecast Eurozone consumer price index print of 1.5%.

The region’s soft inflationary outlook is having a bearish influence on the single currency by persuading the European Central Bank to prolong its quantitative easing scheme.

Brexit Progress Could Open the Door to Multi-Month High GBP/EUR Exchange Rate

At the time of writing, Sterling is trading at a one-month high against the Euro, having rallied on reports from MEPs that the UK and EU are close to a breakthrough.

If the speculation proves accurate then we could see the Pound post further gains against the Euro, with GBP/EUR potentially rising towards a six-month high.

However, if the talks break down, or if Eurozone nations veto the agreement in 10 days time, it could set off a period of intense Sterling selling as traders hedge against a disorderly Brexit scenario.

In terms of data, UK service sector output is tipped to remain steady at around 55.0 on Tuesday and Eurozone GDP is expected to be confirmed at 2.5% in the third quarter.

Neither report is liable to have a major impact on GBP/EUR (both are likely to be overshadowed by the Brexit negotiations) unless there are any major deviations from the forecasts.

Data Affecting This Week’s Euro Exchange Rate Forecast

5th December GBP Markit/CIPS UK Services PMI (NOV)

5th December EUR Eurozone Retail Sales (YoY) (OCT)

7th December EUR Eurozone Gross Domestic Product s.a. (YoY) (3Q F)

8th December GBP Manufacturing Production (YoY) (OCT)

8th December GBP BoE/TNS Inflation Next 12 Mths (NOV)

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

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