Weekly Exchange Rate Outlook: Brexit Fears Batter the Pound, ECB Unfazed by Strength of EUR Exchange Rates

GBP/EUR Exchange Rate: Pound Strikes Six-Month Low against Euro amid Brexit Woes

The Pound to Euro (GBP/EUR) exchange rate fell off a cliff over the past week, with the pairing striking its worst levels since mid-March in response to heightened Brexit tensions between the UK and EU.

This was centred on Boris Johnson’s proposal of his internal markets bill, which sought to override the Northern Ireland protocol of the withdrawal agreement signed between the UK and EU last year.

The move, which was accused of ‘breaking international law’, infuriated the EU, which responded by issuing an ultimatum to ditch the bill or risk jeopardising a post-Brexit trade deal, the threat of which drove a sharp sell-off of Sterling.

While the internal markets bill was able to clear its first parliamentary hurdle in a vote in the House of Commons on Monday, the Pound to Euro exchange rate has mounted a tentative recovery this week on the expectations the bill could face more opposition in later debates.

The chances of any sustained recovery in the Pound to Euro exchange rate will likely remain limited however as the spectre of Brexit looks to cast a long shadow over the currency going forward.

GBP/USD Exchange Rate: Pound to US Dollar Rallies from Six-Week Low despite Lacklustre data

After suffering a dramatic collapse through last week’s session, the GBP/USD exchange rate has begun to claw back some of its losses this week, in spite of some lacklustre UK data releases.

This week’s data releases have so far reported that UK unemployment climbed to a two-year high in the three months to July, while inflation plunged to 0.2% in August, its lowest levels since 2015.

GBP bulls seem unfazed by the releases however, with some analysts suggesting Sterling was oversold following last week’s Brexit sell-off.

Still to come this week, we have the Bank of England’s (BoE) latest rate decision.

No policy decisions are expected from the BoE this week, but GBP investors will be paying close attention to the bank’s forward guidance, particularly in regards to the possibility of the BoE implementing negative interest rates in the future.

USD/GBP Exchange Rate: Shifting Market Sentiment Drives Volatility in the US Dollar

The USD/GBP exchange rate experienced volatility over the past week, largely in response to Brexit uncertainty but also due to shifting market sentiment.

Investors flocked to the safe-haven US Dollar at various points last week as a sudden rout in US equity markets spooked investors.

However USD demand quickly subsided as equity markets stabilised, with growing optimism for a potential coronavirus vaccine also limiting market appetite for safe-haven assets.

Meanwhile, USD investors are bracing ahead of the Federal Reserve’s latest rate decision on Wednesday evening.

No policy changes are expected from the Fed this month, but USD investors will be eager for more insight into how the bank’s new average inflation targets could influence future policy, amidst speculation it may pave the way for more monetary easing.

EUR/USD Exchange Rate: Euro to US Dollar Buoyed by ECB Optimism

The EUR/USD exchange rate advanced again over the past seven days of trade, helped in part of by the European Central Bank (ECB).

Following its meeting last week, the ECB opted to leave its monetary policy untouched, while revising its growth forecasts for 2020 slightly higher.

However it was the accompanying comments from ECB President Christine Lagarde, in which she largely dismissed concerns that EUR exchange rates have strengthened too sharply, which really seemed to buoy the Euro to US Dollar exchange rate.

After a solid start to this week’s session thanks to a slightly stronger-than-expected expansion of Eurozone industrial production in July, we have seen the Euro start to give some ground again, coinciding with the announcement of a number of new restrictions being put in place throughout the Eurozone as Europe wrestles with a coronavirus resurgence.

Matthew Andrews

Contact Matthew Andrews