GBP/EUR Exchange Rate Retreats from Post Brexit Deal Highs

GBP/EUR Exchange Rate Flat in Thin Trade

The Pound to Euro (GBP/EUR) exchange rate is trading narrowly this morning, amid thin trading conditions.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1031, virtually unchanged from this morning’s opening levels.

Pound’s (GBP) Brexit Deal Short-Lived as the Devil is in the Detail

After roaring higher last week following the long-awaited announcement of a UK-EU post-Brexit trade deal, the Pound (GBP) finds itself muted against the Euro (EUR) this morning, after having given some ground on Monday.

This pull-back in Sterling comes amidst a mix of profit taking as well as well as fading optimism over the deal as GBP investors learn more about what does and doesn’t contain.

Of particularly concerns is that fact the deal does not mention the vital service sector, which accounts for roughly 80% of the UK’s economy.

Meanwhile, analyst suggest that while markets will be relieved to know that the UK no longer faces the risk of a highly disruptive no-deal Brexit, the economic threat posed by the coronavirus pandemic, particularly following the emergence of the new, more-infectious strain is very real.

Economists at HSBC said:

‘The deal should limit the scope for further major disruption at the UK/EU border in the new year period, which would have hit trade and economic activity.

‘For now, the challenges posed by the pandemic remain substantial and overwhelm other economic and geopolitical considerations. Both economies are facing major short-term headwinds amid a resurgence in virus cases and fresh restrictions.’

As such we could see coronavirus the Pound come under increasing pressure as UK coronavirus cases continue to rise.

Euro (EUR) Supported by USD Weakness

At the same time, the Euro (EUR) is finding some support this morning, due to the single currency’s negative correlation with the US Dollar (USD).

The US Dollar is facing some pressure today as demand for the safe-haven currency is undermined by the relief that Donald Trump relented and signed the $900bn stimulus package into law over the weekend.

However in the absence of any notable EUR data releases it remains to be seen how well the Euro is able to capitalize on this.

GBP/EUR Exchange Rate Forecast: Threat of UK Lockdown to Weigh on Sterling in 2021?

Looking ahead, it seems unlikely we will see any aggressive bets on the Pound to Euro (GBP/EUR) exchange rate over the next couple of days, as the post-Christmas lull in markets ensures trade in the pairing remains thin.

However, looking ahead to the when investors return in the new year, we could see Sterling face some headwinds amidst speculation that the UK’s deteriorating coronavirus situation could prompt another national lockdown.

Meanwhile, the Euro could also struggle in the coming days as ongoing reports that the new, more-infection strain of the coronavirus has been detected throughout Europe is likely to limit the appeal of the single currency.

Matthew Andrews

Contact Matthew Andrews