Euro Weakens as Pound Surges Ahead on Brexit Day

EURGBP Forecast: Will Euros Continue to Become More Expensive?

Big news to report today as at 11pm today, the UK is set to leave the EU. This also happens the day after the Bank of England has decided to hold interest rates, and sterling ploughs ahead of its currency rivals to be the best-performing (major) currency in the first month of 2020. The euro has had a relatively slow month, with statistics published showing confidence and productivity in the EU’s major members has slowed somewhat.

Bank of England Holds Rates

The Bank of England yesterday decided to hold interest rates at 0.75%, following odds of a 50% possibility of a rise, with several members of its Monetary Policy Committee, who vote on rates, implying they could vote for a cut. The markets had already begun to price a cut into the value of sterling, so this news is welcome to investors as the pound advances against its major competitors.

Unlike on continental Europe, the UK has seen strong data released in January from the likes of the CBI, IHS Markit and Lloyds Bank, as well as positive trends in the housing market. The Bank seems to have taken all this into account when making its decision, however, depending on how the next few months go, there is still a risk that interest rates could be cut at their next meeting in May.

The global economy has somewhat stabilised, also helping sterling, as well as the euro. The Bank of England also noted that it is still too early to tell the impact of the coronavirus outbreak on the global economy, as this week we’ve seen several confirmed cases in Europe.

Euro Ends January on Weakened Note

Now that sterling has had a mini surge, the euro will remain under pressure. However, sterling’s gains could be short-lived. The UK economy is potentially experiencing the “Boris bounce” from the December General Election, which brought some certainty to the Brexit timeline. Yet, on the day the UK is due to leave the EU, analysts are warning that the EU-UK trade negotiations could be difficult.

There is some scepticism over whether the UK will genuinely be able to have a smooth move out of the transition period, due to end in December 2020. If not, this could hit both the pound and the euro.

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