GBP/EUR Exchange Rate Muted on Growing Brexit Pessimism
The Pound to Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as GBP investors grow increasingly unsettled by the lack of progress in Brexit talks.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1251, virtually unchanged from this morning’s opening rate.
Pound (GBP) Sidelined by No-Deal Brexit Risk
The Pound (GBP) is struggling to find any momentum against the Euro (EUR) and the majority of its other peers this morning, as Brexit uncertainty starts to bubble over once more.
Time is fast running out for the UK and EU to reach an agreement on a post-Brexit trade deal, as the UK government remains committed to its December deadline.
Following a meeting with his UK counterpart, David Frost earlier this week, the EU’s Chief Negotiator Michel Barnier said he is ‘worried and disappointed’ by the UK’s unwillingness to compromise.
At the same time, the UK government has also warned that a deal ‘will not be easy to achieve’, a notable change in tone from Boris Johnson’s recent optimism.
Analysts at ANZ bank warn that GBP will grow increasingly vulnerable to no-deal Brexit fears as we get closer to the end of the year.
‘Pragmatism suggests that some form of trade deal is in both sides’ interests, but politicians are not prepared to agree a deal at any cost. Without progress in the talks, the prospect of a no-deal outcome could cause significant volatility in GBP.’
Euro (EUR) Undermined by ECB’s Exchange Rate Concerns
At the same time, the Euro (EUR) is also struggling this morning amidst reports the European Central Bank (ECB) is concerned by the current strength of the single currency.
According to a source on the ECB’s governing council, who spoke to the Financial Times, the recent sharp appreciation of the Euro, particularly against the US Dollar (USD), risks derailing the Eurozone’s coronavirus recovery.
The source said:
‘In the last few weeks there has been an appreciation of the Euro, which is always worrisome when you have weak demand, especially as the Euro area is the most open economy in the world and unusually dependent on global demand.’
The council member warns that the recent change to the Federal Reserve’s inflation framework is of particular concern.
‘The problem is that the Fed has already decided and so the market may interpret interest rates as being structurally higher in the Euro area, which could lead to a further appreciation of the Euro.’
The ECB will hold its latest policy meeting next week and is expected to cut its inflation forecasts, something which could signal more stimulus from the bank.
GBP/EUR Exchange Rate Forecast: Robust UK Construction PMI to Boost Sterling?
Looking ahead, the Pound to Euro (GBP/EUR) exchange rate could be offered a leg up at the end of this week’s session by the publication of the UK’s construction PMI.
This is expected to show that UK construction activity continued to rise last month, capping off what has been a bumper month of growth in the UK’s private sector.
In the meantime, the Euro could face some pressure later today if the Eurozone’s latest retail sales figures print below expectations.