GBP/EUR Exchange Rate Tumbles after EU Leaders Reject UK Brexit Proposal
UPDATE: The Pound Sterling Euro (GBP/EUR) exchange rate has fallen by -0.6% today, hitting an inter-bank exchange rate of €1.11.
This puts the GBP/EUR pairing down to an over 1-week low and has been caused by a negative reaction to the latest EU summit.
Prime Minister Theresa May came up against unified opposition to her Brexit proposal, which was rejected by all other EU leaders.
While some analysts believe that this is manufactured antagonism to allow Mrs May and EU leaders to appear tough on Brexit, GBP traders have still panicked.
The meeting’s failure to produce an agreement has raised fears about a no-deal Brexit, which has greatly reduced demand for Pound Sterling.
Increased US-China Trade Tariffs Fail to Boost Pound Sterling Euro (GBP/EUR) Exchange Rate
UPDATE: The latest escalation in US-China trade tensions failed to offer any support to the Pound Sterling to Euro (GBP/EUR) exchange rate today.
While the US and China both announced fresh tariffs on each other’s goods markets were quick to shrug this off, giving the Euro (EUR) a boost as the US Dollar (USD) fell out of favour.
Although the Eurozone economy could suffer if global growth slows further in the months ahead this was not enough to weigh down EUR exchange rates at this stage.
Euro (EUR) Exchange Rates Fail to Take Encouragement from Suggestion of ECB Forward Guidance
UPDATE: Comments from European Central Bank (ECB) policymaker Benoit Coeure failed to put any fresh pressure on the Pound to Euro (GBP/EUR) exchange rate this afternoon.
Coeure’s suggestion that it might be appropriate for the central bank to adopt some type of forward guidance regarding the pace of monetary normalisation was not enough to shore up the Euro (EUR).
With the ECB still looking set to leave interest rates on hold until well into 2019 the upside potential of the single currency remains limited, keeping the GBP/EUR exchange rate on a narrow trend. Currently GBP/EUR is flat at €1.124 on the inter-bank exchange rate.
Latest IMF Brexit Warning Keeps Pound Sterling Euro (GBP/EUR) Exchange Rate under Pressure
As the International Monetary Fund (IMF) offered a fresh warning on the likely costs of a no-deal Brexit in its latest health check on the UK economy this put the Pound Sterling to Euro (GBP/EUR) exchange rate under fresh pressure.
This has left Pound Sterling (GBP) lacking in any particular support at the start of the week with investors continuing to fret over the likelihood of the UK leaving the EU without any deal in place.
Even in the event of the two sides reaching an amicable deal by March 2019, the IMF still expects the UK economy to take a hit as trade friction increases.
As IMF Director Christine Lagarde commented:
‘Any deal would not be as good as the smooth process under which goods, services, people and capital move between the EU and the UK without barriers, without impediments and obstacles.
‘Whatever the deal is will not be as good as it is at the moment.’
GBP exchange rates failed to find any positive momentum in the wake of the report, especially as Theresa May continues to struggle to drum up support for her Chequers plan.
Weaker UK Inflation Likely to Weigh on GBP/EUR Exchange Rate
Wednesday’s UK consumer price index data is not likely to offer the Pound Sterling to Euro (GBP/EUR) exchange rate a rallying point.
Forecasts point towards the headline inflation rate weakening from 2.5% to 2.4% on the year in August, indicating that domestic price pressures are still easing.
While this would give wage growth a fresh boost the dip in inflation is likely to deter Bank of England (BoE) policymakers from altering their interest rate outlook any time soon.
A slowdown in UK retail sales in August could put further pressure on the GBP/EUR exchange rate on Thursday, with investors anticipating a modest contraction in sales volumes on the month.
Evidence that domestic consumers are reining in their spending would give investors fresh incentive to sell out of the Pound.
Pound Sterling Euro (GBP/EUR) Exchange Rate Vulnerable to Positive ECB Comments
Comments from European Central Bank (ECB) President Mario Draghi may provoke additional volatility for the Pound Sterling to Euro (GBP/EUR) exchange rate in the days ahead.
If Draghi signals a less optimistic outlook on monetary policy this could drive the Euro (EUR) lower across the board.
Even though the central bank confirmed its intention to reduce the size of its asset purchases at its October meeting this may not be enough to keep the single currency on a stronger footing.
With the headline Eurozone inflation rate confirmed to have slowed from 2.1% to 2.0% in August the pressure on policymakers to consider raising interest rates has nevertheless eased.
Solid Eurozone PMIs to Limit Potential for GBP/EUR Exchange Rate Gains
Friday’s raft of Eurozone manufacturing and services PMIs could see the Pound Sterling to Euro (GBP/EUR) exchange rate falter.
Evidence of resilient growth within the currency union would help to shore up the appeal of the Euro, indicating that the negative impact of global trade tensions is proving more limited.
Signs of easing momentum in either sector, however, would leave EUR exchange rates exposed to fresh downside pressure.
Even so, the German and Eurozone PMIs are expected to remain firmly within growth territory, limiting the potential benefit for the Pound Sterling to Euro (GBP/EUR) exchange rate.