The Pound to Euro exchange rate fluctuated ahead of the weekend due to mixed signals from the UK government over the prospect of whether UK-EU trade discussions will continue.
Last Week: Uncertainty over Brexit Trade Talks Fuels Pound to Euro Volatility
The Pound reacted with volatility on contrasting reports in Brexit trade talks, which Boris Johnson triggered when he warned the UK to prepare for an Australian-style trade deal.
While Boris Johnson did not rule out the possibility of talks continuing, this failed to shore up the Pound for long thanks to subsequent comments from a government spokesperson.
However, Sterling recovered as EU officials appeared to confirm talks would continue, creating cautious optimism a deal could still be agreed.
Meanwhile, the Euro weakened as coronavirus cases surge in Europe, prompting tighter restrictions that could threaten the Eurozone’s fragile recovery.
The Euro came under further pressure last week as the latest ZEW surveys showed economic sentiment in Germany dropped sharply, caused by concerns over a second coronavirus wave, Brexit, and the US election.
Three Things to Watch Out for This Week
- Brexit Developments
The Pound to Euro exchange rate will continue being highly sensitive to Brexit headlines as the UK and EU look at the potential structure for more trade talks, which will likely cause more volatility in the pairing.
- UK Consumer Price Index
The Pound could find a rallying point on Wednesday if the headline UK inflation rate shows an improvement on the month.
After the negative reading seen in September, forecasts point towards a solid uptick of 0.5% on the month, an improvement which would limit the case for further Bank of England (BoE) policy action.
- Eurozone and UK PMIs
Worries over the underlying health of the Eurozone economy could pick up on the back of Friday’s raft of Eurozone services and manufacturing PMIs, with expectation the service sector will continue contracting.
At the same time, the UK’s private sector activity is forecast to slow on the month, while the index could also highlight rising job losses, potentially driving movement in GBP/EUR.
GBP/EUR Outlook
Fresh signs of weakness from the Eurozone economy may encourage the GBP/EUR exchange rate to trend higher this week, in spite of lingering worries over Brexit.