GBP/EUR Exchange Rate Dips Ahead of Rishi Sunak’s Mini Budget Announcement
The Pound to Euro (GBP/EUR) exchange rate fell by -0.2% today, with the pairing currently fluctuating around €1.120.
Sterling fell today ahead of the announcement of Chancellor Rishi Sunak’s mini budget.
However, with the UK suffering its steepest decline in growth for centuries, GBP investors are remaining cautious.
Nevertheless, Sunak’s forecasts for the economy could be mildly more optimistic that the Office for Budget Responsibility’s (OBR) this year, which predicted a -13% decline in GDP for 2020.
Now that a Covid-19 vaccine rollout appears more likely in the months ahead, there is reason to be more optimistic about Britain’s economic recovery.
Brexit uncertainty will continue to haunt UK markets, however.
A confidential Cabinet Office briefing, reportedly seen by The Guardian, revealed a bumpy road ahead. The briefing warned:
‘Winter 2020 could see a combination of severe flooding, pandemic influenza, a novel emerging infectious disease and coordinated industrial action, against a backdrop of the end of the [Brexit] transition period.’
As a result, we could see the GBP/EUR exchange rate fall as fears mount for the UK economy as November draws to a close.
Euro (EUR) Head Higher Despite Concerns Over a ‘W-Shaped’ Recovery for the Eurozone
The Euro (EUR) edged higher today despite concerns that the Eurozone is heading for a ‘W-shaped’ economic recovery, with Europe’s lockdowns likely to cause another downward slide.
Monday saw the IHS Markit comment that ‘[b]usiness activity fell sharply in November as countries introduced more aggressive measures.’
Following Monday’s release of the flash Eurozone Markit PMI Composite for November – which fell to 45.1 – investors have been monitoring closely the bloc’s economic situation.
Chris Williamson, the chief business economist at IHS Markit, commented:
‘The Eurozone economy has plunged back into a severe decline in November amid renewed efforts to quash the rising tide of COVID-19 infections.’
As a result, the Euro’s gains have remained largely muted this week as the outlook for the Eurozone’s economy becomes increasingly bleak.
However, the single currency has benefited from its negative correlation with the US Dollar (USD).
The US Dollar suffered this week from improving risk-sentiment limiting demand for the safe-haven currency.
Consequently, the Euro benefited from a weaker USD while hopes of a Covid-19 vaccine rollout improves the outlook for the Eurozone’s economic recovery in the months ahead.
GBP/EUR Outlook: Could a Dimming Outlook for the Eurozone Economy Drag Down the Euro?
Euro (EUR) traders will be looking ahead to tomorrow’s release of December’s German GfK Consumer Confidence gauge.
If this confirms fears for the Eurozone’s largest economy’s economic outlook, then we could see EUR fall.
Tomorrow will also see speeches from several European Central Bank (ECB) policymakers. Again, any dovish commentary about the Eurozone’s economy would be EUR-negative.
The GBP/EUR exchange rate will, however, continue to be dictated by Brexit developments.
Any signs that Downing Street and Brussels could settle on a post-Brexit trade deal would boost Sterling.