The Pound to Euro (GBP/EUR) exchange rate experienced notable volatility last week amid heightened Brexit uncertainty.
What’s Been Happening: Brexit Drama Stokes GBP Volatility
The Pound fluctuated against the Euro and the majority of its other peers last week amid a stream of often conflicting Brexit deadlines.
This saw the Pound initially rally through the first half of the week following reports that UK-EU trade talks had entered the so-called ‘tunnel’ of intensive negotiations.
However, this then gave way to a sharp sell-off in mid-week trade after the EU’s Chief Brexit Negotiator quashed these reports as he told EU officials a deal ‘hangs in the balance’.
Fresh Brexit optimism allowed Sterling to make an attempt to rally in the second half the week, but this again proved short lived, after a UK official suggested the chances of a deal were ‘receding’ as the EU hardened its negotiating stance.
Meanwhile, the Euro steadily climbed through last week’s session despite some lacklustre EU data releases.
This upward momentum in the single currency came courtesy of broad weakness in the US Dollar, with the negative correlation in EUR/USD offering ample support to the Euro.
Three Things to Watch Out for This Week
1. Brexit Developments
Brexit will no doubt continue dominate Sterling sentiment this week, and as a result trade in the Pound is likely to remain choppy.
2. ECB Policy Meeting
In the spotlight for EUR investors this week will be the European Central Bank’s (ECB) December policy meeting, in which the bank is widely expected to announce an expansion to its monetary stimulus programme.
3. EU Summit
Also influencing the Euro this week will be the latest EU summit of leaders. Reaching an agreement on the next EU budget is likely to the top priority, but could opposition from Hungary or Poland derail a deal and put pressure on the Euro?
GBP/EUR Forecast
Looking ahead, expect to see the GBP/EUR exchange rate infused with additional volatility this week as Brexit dominates headlines.