Pound Sterling to Euro (GBP/EUR) Exchange Rate Hit by Brexit Uncertainty despite Draghi Stimulus Shock

Pound to Euro (GBP/EUR) Exchange Rate Avoids Losses as Euro Tumbles on European Central Bank News

The past day has seen sudden and wide fluctuations in the Pound Sterling to Euro (GBP/EUR) exchange rate as the Pound (GBP) was sold off on the latest rise in Brexit uncertainties, while the Euro (EUR) was hammered by a dovish tone from the European Central Bank (ECB).

Despite the Brexit jitters, Euro weakness has means that GBP/EUR continues to trend with an upside bias this week.

GBP/EUR’s interbank level has been trending within the region of €1.16 for most of the week. The pair ultimately didn’t see much shift in direction on Thursday, as the latest Brexit and ECB news left both currencies unappealing.

Brexit jitters worsened as signs pointed to a lack of progress in UK-EU negotiations. However, the Euro tumbled too as the European Central Bank (ECB) took a solidly dovish shift in tone in its latest policy decision, indicating a flood of new stimulus measures to kick-start the ailing Eurozone economy.

Pound (GBP) Exchange Rates Knocked by Fresh Round of Brexit Uncertainties

Investors were hesitant to buy the Pound (GBP) today, as reports emerged suggesting that the UK and EU remained at an impasse over Brexit negotiations.

Hopes that the UK government would be able to bolster the domestic support for its Brexit plan supported the Pound earlier this week, but as UK-EU negotiations appeared to be making little notable progress those hopes have been doused.

Sources from talks reportedly said that no progress is expected over the next 48 hours, making investors doubtful that any change will be made before the Brexit deal is set to return to Parliament vote on 12 March next week.

According to Nikolay Markov, Senior Economist at Pictet Asset Management:

‘Markets are getting conflicting signals from lawmakers in Britain and the negative news flow from Brussels on the negotiation process and that is keeping the Pound in a tight range,’

Euro (EUR) Exchange Rates Tumble on European Central Bank (ECB) Dovishness

The Pound to Euro (GBP/EUR) exchange rate ultimately avoided losses today, despite Brexit jitters weighing on the Pound (GBP).

This was because investors sold the Euro (EUR) following the European Central Bank’s (ECB) March policy decision in the early afternoon.

As was widely expected, the ECB left monetary policy frozen. However, the bank also indicated that it would leave interest rates frozen throughout 2019 and announced plans for new stimulus. This was due to signs of slowdown in the Eurozone economic outlook.

Analysts generally indicated that the move was reasonable although the Euro saw heavy losses across the board.

According to Seema Shah, Senior Global Investment Strategist at Principal Global Investors:

‘The ECB’s hands are tied when it comes to conventional monetary policy and the best it could have come up with was exactly what it delivered. Already the market has moved to price in unchanged interest rates through 2019 and into the early part of 2020.’

Pound to Euro (GBP/EUR) Exchange Rate Traders Await Further Eurozone Data

The Eurozone economic outlook has weakened, European Central Bank (ECB) interest rate hike bets have faded, and investors now expect a more dovish tone from the bank for most of 2019.

As a result, the Euro (EUR) could be in for further losses over the coming week.

Friday will see the publication of a few more influential stats before the week is out. German factory orders figures from January, as well as French trade balance and industrial production stats from January, could influence some late-week Euro movement if they surprise investors.

UK consumer inflation expectations will be published tomorrow too, but the Pound’s late-week movement is more likely to be influenced by potential surprise developments in Brexit talks.

With the government holding its meaningful Parliament Brexit vote next Tuesday, any surprising Brexit news in the coming days is likely to be hugely influential for the Pound to Euro (GBP/EUR) exchange rate.

Josh Jeffery

Contact Josh Jeffery