GBP/EUR Exchange Rate Undermined by Brexit Realities
The Pound to Euro (GBP/EUR) exchange rate has fallen sharply this morning amidst renewed concerns over what will happen in the next stage of Brexit.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1822, down roughly 0.7% from the day’s opening levels and well below the post-election high of €1.2076.
Pound (GBP) Takes a Dive as Boris Johnson Seeks to Rule out Transition Extension
The Pound (GBP) is currently trading close to its pre-election levels this morning, having given up almost all the gains made since Thursday’s exit poll.
This slump in Sterling comes after investors were given a wake-up call this morning on reports Boris Johnson is seeking to legally block any extension to the Brexit transition period.
Brexit bill to block further delay to transition https://t.co/pu1ePtiPkB
— BBC Politics (@BBCPolitics) December 17, 2019
GBP investors had perhaps naively hoped that Johnson’s convincing majority would prevent him from being beholden to the Brexiteer faction within his party and allow him to pursue a softer exit from the EU.
Kit Juckes, foreign exchange analyst at Société Générale, explains:
‘The news that UK PM Johnson plans to rule out (legally) any extension to the transition period after the UK leaves the EU has given Sterling a kicking this morning.
‘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.’
If Johnson passes the bill, which given his overwhelming majority in parliament seems likely, then the UK faces the threat of a possible no-deal Brexit at the end of 2020.
Heaping additional pressure on the Pound this morning was also the publication of the UK’s latest employment report, as GBP investors were dismayed by a sharper-than-expected drop in wage growth in October.
Euro (ECB) Clipped by ECB Chatter
At the same time, while the Euro (EUR) is soaring against the Pound (GBP) it is struggling to find momentum in broader trade.
This comes in the wake of dovish comments from the European Central Bank (ECB)’s Olli Rehn, who warned that as inflation continues to undershoot targets that a more accommodative monetary policy is warranted.
The ECB most recently introduced a new stimulus package in September, but the re-introduction of its quantitative easing programme has proved to be controversial.
GBP/EUR Exchange Rate Forecast: Dovish BoE Keep Pressure on Sterling?
Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may remain on the back foot as we enter the mid-week, with the publication of the UK’s consumer price index (CPI).
Economists forecast this will show that inflation in the UK held at 1.7% in November, leaving it below the Bank of England’s (BoE) 2% target.
This is likely to keep pressure on the BoE as the bank prepares to deliver its final rate decision of the year on Thursday.
While no policy changes are expected from the bank this month, economists are expecting the BoE to drop some strong hints that it will cut rates in early 2020, likely clipping Sterling sentiment.
Meanwhile, EUR investors will await a speech by ECB President Christine Lagarde on Wednesday for fresh impetus in the currency.