GBP/EUR Exchange Rate Undermined by Brexit Pessimism
The Pound to Euro (GBP/EUR) exchange rate is trending lower again this morning, as the risk of a no-deal Brexit appear to be on the rise.
At the time of writing the GBP/EUR exchange rate is trading at around €1.0999, down roughly 0.5% from this morning’s opening levels.
Pound (GBP) Slumps as Brexit Breakthrough Remains Elusive
The Pound (GBP) is on the back foot against the Euro (EUR) this morning after crunch talks between Boris Johnson and European Commission President, EU chief Ursula von der Leyen failed to deliver a much-needed breakthrough in trade talks.
The consensus between both sides is that ‘large gaps’ remain, with disagreements on fishing rights, competition rules and the enforcement of the deal key sticking points.
Talks will continue to Sunday but analysts appear downbeat on the chances of a breakthrough being found by then.
If at first you don’t succeed, you can try and try, but sometimes it just doesn’t work …. https://t.co/hXBkaoyomg
— Laura Kuenssberg (@bbclaurak) December 10, 2020
BCC Political Editor Laura Kuenssberg comments:
‘If at first you don’t succeed you can try and try. But eventually, sometimes failure is what follows.
‘That now seems the likely outcome of months of talks designed to create a smooth path for the country towards a different future.
‘There is a chance still that a couple of frantic days could result in a change. But the chance of reassessing and refreshing the efforts seem now remote.’
Applying further pressure to the Pound this morning is the publication of the UK’s latest GDP figures, after October’s monthly release reported economic growth slowed from 1.1% to 0.4% at the start of the fourth quarter, stoking expectations of a double-dip recession.
Dovish ECB to Weigh on the Euro (EUR)?
At the same time, the Euro (EUR) may struggle to consolidate its gains against the Pound today as the European Central Bank (ECB) prepares to conclude its final policy meeting of 2020.
The ECB is widely expected to announce an expansion to its Pandemic Emergency Purchase Program (PEPP) following its September meeting, as the bank seeks to support the Eurozone through the second wave of coronavirus infections.
EUR investors will also be keeping a close eye on the ECB’s forward guidance for 2021, where a dovish outlook will likely dampen the appeal of the single currency.
There is also some speculation that ECB President Christine Lagarde may also comment on the current strength of the Euro, which could also apply some pressure to EUR exchange rates.
GBP/EUR Exchange Rate Forecast: EU Budget Deadlock a Possible Risk for the Euro
Looking past this afternoon’s ECB meeting, the meeting of EU leaders at this evening’s summit could offer some relief to the Pound to Euro (GBP/EUR) exchange rate.
The priority at this summit will be the passing of the new EU budget, which has previously been blocked by Hungary and Poland in response to the inclusion of a rule of law mechanism.
Reports suggest that a compromise may have been found with the two hold outs, but talks are likely to remain tense, with the Euro likely to face some headwinds if there are any additional setbacks to the €750bn pandemic recovery fund and €1.1tn budget.
Meanwhile, it seems safe to assume that Brexit will continue to dominate Sterling sentiment through the remainder of the week, likely infusing additional volatility into the currency.