Pound Euro Exchange Rate Lifted from Three-Month Low on Brexit Deal Hopes

GBP/EUR – Pound Buoyed by Optimism over Possible UK-EU Trade Deal

Signs of progress in ongoing UK-EU trade talks helped to give the Pound a strong boost across the board this week.

Fears of a no-deal scenario had risen sharply ahead of the weekend, given the then Sunday deadline, pushing GBP exchange rates to multi-month lows.

However, as talks were ultimately extended once again, and EU politicians voiced hopes over progress and the potential path to an agreement, the mood towards the Pound rapidly improved.

As long as the prospect of a deal remains on the table, this could keep the GBP/EUR exchange rate on a positive footing in the days ahead in spite of the lingering risk of talks ending without an agreement in place.


GBP/USD – Rising UK Unemployment Fails to Dent Pound

While UK redundancies hit a record level in the three months to October, this was not enough to put any significant pressure on the Pound at this stage.

Even with the UK labour market looking set to experience a further deterioration before the end of the year, thanks to the collapse of high street brands in recent weeks, worries over the economic outlook remained limited.

The Bank of England (BoE) could put a dampener on GBP exchange rates on Thursday, though, if it maintains a dovish policy outlook.

Any signs of increasing anxiety among BoE policymakers may expose the Pound to fresh selling pressure, especially given its bullish run over recent days.


USD/GBP – Manufacturing Sector Weakness Limits US Dollar Appeal

The US Dollar struggled to find any significant traction against its rivals as market optimism over the progress towards a widespread rollout of Covid-19 vaccines persisted.

Signs of weakness within the manufacturing sector put some pressure on USD exchange rates, meanwhile, with both industrial and manufacturing production showing a slowdown in November.

While political tensions in the US have continued to ease, this has done little to improve the appeal of the US Dollar, given its nature as a safe-haven asset.

If the Federal Reserve expresses concerns later today over the outlook of the US economy, or a willingness to act further in the months to come, this could see the US Dollar falling further out of favour with investors.


EUR/USD – Better-than-Forecast Services PMIs Benefit Euro

As December’s flash Eurozone services PMIs proved better than forecast, the Euro received a limited boost.

Although the service sector still showed a monthly contraction, remaining below the neutral baseline of 50, EUR exchange rates were able to push higher in the wake of the data.

However, as the risk of a fourth GDP decline remains, the upside potential of the single currency could prove limited.

Any deterioration in the German IFO business sentiment surveys for December may put pressure on the Euro, with the possibility of a double-dip recession still casting a shadow over EUR exchange rates.

Louisa Heath

Contact Louisa Heath