Pound Sterling Euro (GBP/EUR) Exchange Rate Edges Higher Ahead of Fed Meeting
The Pound Sterling Euro (GBP/EUR) exchange rate rose by around 0.2% on Wednesday. This left the pairing trading at around €1.1236.
The Pound was able to benefit on Wednesday as improved risk sentiment buoyed the currency ahead of this evening’s US Federal Reserve meeting.
Over the last few days, GBP has been driven by US Dollar (USD) moves, and the shifts in risk appetite played a bigger role than domestic issues such as Brexit.
Speculation the Fed may take steps to curb the recent increase in bond yields has dampened US Dollar sentiment, boosting the riskier Sterling.
There are not any major changes expected during today’s meeting, and the recent rises in yields has supported the Dollar. This is thanks to increasing signs the world’s largest economy is rebounding from the coronavirus crisis, although a full recovery is still far away.
Analysts expect the US central bank will adopt yield curve control to send 10-year Treasury yields lower. However, the uncertainty about today’s meeting is likely to keep USD under pressure and support GBP against EUR.
According to Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo:
‘The Fed can afford to wait and see on yield curve control because the US economy has gotten past the crisis phase and only just entered the healing phase.
‘The markets got overly optimistic and are adjusting lower, but this is a good chance to buy the Dollar on the dip.’
Although, riskier assets such as the Pound could suffer losses later as the Fed is expected to publish their first economic projections since the outbreak of the virus. This could send traders back to safer bets such as the single currency.
UK Government Confirms it Will Not Request Brexit Extension
Meanwhile, the ongoing trade talks between the United Kingdom and European Union continued to weigh on both the Euro and Pound.
The bloc’s chief Brexit negotiator, Michel Barnier is scheduled to speak today. This could offer further details on the state of negotiations and may boost market sentiment.
Sterling received a further boost after Boris Johnson’s Cabinet meeting confirmed that all retailers in England will be allowed to reopen from 15 June.
However, the Prime Minister did confirm that all pubs, restaurants, and hairdressers would not be able to open until 4 July at the earliest.
The Pound rose this morning against the Euro despite the meeting also confirming that the UK will not request an extension to the transition period from the EU.
Britain will confirm this to the EU on Friday, and this is likely to limit any Sterling gains as it increases the chances of the UK crashing out of the bloc without a deal.
Pound Euro Outlook: Fed and Brexit Negotiations in Focus
Looking ahead, the Pound (GBP) could continue to edge higher against the Euro (EUR) if risk appetite is buoyed by the Fed and the EU’s chief negotiator.
If the US Federal Reserve’s monetary policy meeting boosts market sentiment as policymakers are optimistic the world’s largest economy will recover from the crisis, GBP will edge higher.
Meanwhile, traders will also be focused on any optimistic comments from the European Union’s top Brexit negotiator.
If Michel Barnier offers further details on UK-EU trade negotiations, suggesting the two sides could reach a deal before the end of the transition period, Sterling will rally. This will send the Pound Euro (GBP/EUR) exchange rate higher.