Pound to Euro (GBP/EUR) Exchange Rate Falls as Controversial Brexit Internal Market Bill Passes through House of Commons

GBP/EUR Exchange Rate Sinks as UK Suffers Largest Recession on Record for the Second Quarter

The Pound to Euro (GBP/EUR) exchange rate fell by -0.2% this morning. The pairing is currently fluctuating around €1.09 after the controversial UK Government Brexit Internal Market Bill safely passed through the House of Commons.

Sterling suffered as many investors believe this will threaten relations between the UK and the EU.

Consequently, British markets are concerned over the increasing likelihood of a hard Brexit later this year.

Professor Phillippe Sands, Professor of Laws and Director of the Centre on International Courts and Tribunals at University College London, said the bill breaks international law and ‘undermine[s] the UK’s negotiating position.’

However, Business Secretary Alok Sharma assured that the UK wants to reach a post-Brexit trade deal with the EU.

Mr Sharma told LBC Radio:

‘The fundamental point is we want to reach a deal.’

In UK economic news, today saw the release of the UK’s final GDP figure for the second quarter. The figure fell by -19.8%, better than forecasts of a -20.4% drop.

Nevertheless, this was still the largest second-quarter drop on record, sparking fears for Britain’s struggling economy.

The Office for Nationalist Statistics (ONS) said in its statement:

‘It is clear that the UK is in the largest recession on record.’

‘The latest estimates show that the UK economy is now 21.8% smaller than it was at the end of 2019, highlighting the unprecedented size of this contraction.’

Euro (EUR) Rises as German Unemployment and Retail Sales Improve

The Euro (EUR) rose against the Pound (GBP) following a stronger-than-expected German Unemployment Rate for September.

The figure fell unexpectedly from 6.4% to 6.3%, buoying optimism for the Eurozone’s largest economy.

Today also saw the release of Germany’s Retail Sales report for August, which beat forecasts and rose from -0.2% to 3.1%.

Consequently, this has boosted hopes that household spending in the Eurozone’s powerhouse economy could provide a strong recovery in the third quarter.

Analysts at Reuters commented:

‘German retail sales rose much more than expected in August, data showed on Wednesday, raising hopes that household spending in Europe’s largest economy will power a strong recovery in the third quarter from the coronavirus shock.’

EUR investors will be looking ahead to the European Central Bank’s President Christine Lagarde’s speech.

If Lagarde is notably downbeat about the Eurozone’s economy in the months ahead, then we could see the single currency suffer.

GBP/EUR Forecast: Could a Dovish Bank of England and Brexit Fears Drag Sterling Down Further?

Euro (EUR) investors will be looking ahead to tomorrow’s EU Special Leaders Summit. Any signs of a dimming outlook for the Eurozone’s economy would prove EUR-negative.

Tomorrow will also see the release of September’s Eurozone’s Markit Manufacturing PMI. If this remains at 53.7 or edges higher, then we could see the single currency rise as hopes grow for the third quarter.

Sterling traders will be eyeing tomorrow’s release of September’s UK Markit Manufacturing PMI, which is expected to hold at 54.3. Any marked improvement, however, would prove GBP-positive.

Tomorrow’s speech from the Bank of England’s (BoE) Chief Economist, Andrew Haldane, could also provide an insight into the Bank’s opinion of the British economy. If this is dovish, however, Sterling would suffer.

The GBP/EUR exchange rate will continue to be influenced by Brexit and coronavirus developments. As a result, GBP could suffer if there are an increasing number of signs of a no-deal Brexit.

David Moore

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