Pound Sterling to Euro Exchange Rate Trending Just a Cent above 2018 Worst Levels

Pound to Euro Exchange Rate Fails to Advance as EUR Firms on US Government Shutdown

2018 hasn’t been a particularly good year for the Pound (GBP) or the Euro (EUR), but the Pound Sterling to Euro (GBP/EUR) exchange rate has ultimately fallen on the year.

The reality of the Brexit process and the lack of clarity on how it could end has battered Sterling, allowing even a Euro weakened by fears of slowing economic activity and US-EU trade jitters to advance in recent months.

Last week saw GBP/EUR slide for its fourth consecutive week as the Euro benefitted from Eurozone political relief and Brexit news kept weighing on Sterling.

While the Pound to Euro exchange rate has put on a mixed performance this year (fluctuating between highs of €1.1580 and lows of €1.1006) the pair looks on track to end 2018 just around a cent above the year’s worst levels.

Pound (GBP) Exchange Rates Throttled Throughout the Year by Brexit Jitters

2018 started out with markets fairly optimistic that the UK and EU would be able to negotiate a solid Brexit deal that would lead to the UK leaving the EU with a soft Brexit in March 2019.

However, as the year progressed it became more apparent that UK Prime Minister Theresa May’s domestic position was too volatile.

Opponents to her Brexit plans increasingly emerged from within her own Conservative Party, making investors anxious that her plans could be scuppered and lead to a worst-case scenario ‘no-deal Brexit’.

After the UK-EU Brexit negotiations were finally concluded, concerns about domestic opposition took the forefront and speculation about the possibility of Britain crashing out of the EU with no deal at all reached fever pitch.

December rounded out the year with UK politics in chaos. Theresa May delayed a Parliament debate on her Brexit plan due to expectations that it would be blocked, and the Prime Minister also weathered a vote of no-confidence from her Conservative Party.

UK Parliament is on recess for the rest of the year, leaving the Brexit process in limbo with a mere three months until the UK is set to formally leave the EU.

For now, investors are focusing on January when Parliament will reconvene and the unpredictable Brexit rollercoaster will continue.

Euro (EUR) Exchange Rates Finding Support in US Dollar (USD) Woes

For much of 2018, the Euro’s (EUR) movement has reflected the movements of its biggest rival, the US Dollar (USD).

With the US Dollar climbing throughout the year on US growth expectations, the negatively correlated Euro came under pressure, and EUR exchange rates extended losses on data which indicated that the Eurozone’s economic output is slowing.

This limited the Euro’s gains against the Brexit-battered Pound (GBP) for much of the year.

However, signs of weakness in US growth have appeared in recent months, and analysts expect US President Donald Trump will have less ability to push his fiscal policy plans when the Democratic Party takes control of the US House of Congress.

This has made the Euro more appealing, and there is potential for the Euro to strengthen further in 2019 as Euro rivals like the Pound and US Dollar are weakened by political jitters.

In December, as the US House of Congress saw its last weeks of Republican Party control, US President Donald Trump made a last ditch attempt to pass a US funding bill that included a budget for his controversial border wall plans.

As the bill failed to make it through the US Senate, this led to a US government shutdown that analysts argue could last until Congress reconvenes in January. The latest US political uncertainties left the Euro with some strength at the end of the year.

Pound to Euro Forecast: GBP/EUR Exchange Rates to be driven by Politics in 2019

The Pound to Euro (GBP/EUR) exchange rate is likely to end 2018 on a gloomy note. The Pound (GBP) outlook is marred by Brexit uncertainties, which will continue to dominate the British currency in 2019.

Pound investors are all focusing on the upcoming Parliamentary vote on UK Prime Minister Theresa May’s negotiated Brexit deal, which will be held in mid-January.

If the vote succeeds then Sterling will climb as it means the UK is headed for a softer Brexit. However, if the bill is blocked, uncertainty will ratchet up a notch.

Time is running out, with Britain still set to formally leave the EU in late-March. So long as the possibility of a ‘no-deal Brexit’ or a general election remains, the Pound is in for continued weakness and volatility.

The Euro (EUR), on the other hand, could push GBP/EUR even lower in the coming weeks.

Italy-EU political tensions have lightened and there is still speculation that the European Central Bank (ECB) could hike Eurozone interest rates in late-2019.

If upcoming Eurozone data comes in better than expected, the Pound to Euro (GBP/EUR) exchange rate’s recent downtrend is likely to continue heading into the New Year.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard