GBP to EUR Rate Near 2-Week High, on Hopes for UK Economic Rebound in 2020

Brexit Developments Continue to Impact Euro forecast

The pound to euro interbank exchange rate stands at 1.1821 today. This is just 0.27% below sterling’s near two-week high against the euro, its highest since Tuesday 17th December, reached yesterday, at 1.1854.

In part, sterling stands near this two-week high against the euro on the interbank market, because investors are hopeful that the UK economy will accelerate in 2020.

According to the Office for National Statistics (ONS), UK GDP (Gross Domestic Product) grew by 0.0% in the three months to October, or stagnated.

However, following the UK’s decisive election result last month, in which the Conservatives won a majority of 80 seats, this may encourage British businesses to hire and invest. After all, what with the new majority UK government, UK companies may feel more confident about the outlook, thereby bolstering GDP growth, and supporting sterling.

Pound to Euro Rate May Be Affected by UK’s Future EU Trade Talks

However, looking to the next 12 months, sterling’s value versus the euro on the interbank market may be affected, by Prime Minister (PM) Boris Johnson’s future trade deal talks with the EU.

PM Johnson is legislating to limit the negotiations to just 12 months, up to the end of this year, when such trade deals normally take six or seven years. Apparently, the PM wishes to emphasise his pledge to “get Brexit done”.

However, for markets, this risks creating a new Brexit cliff-edge, in which the UK either negotiates its future EU trade deal in a tight deadline, or defaults to trading on World Trade Organisation (WTO) terms, with more tariffs and bureaucracy. We’ll see how the trade talks progress, and their effect on sterling.

Sterling vs Euro Might Be Influenced, by UK and Eurozone Manufacturing Fall

Turning to today, the pound to euro interbank exchange rate could be impacted, by the further decline in the UK’s and Eurozone’s manufacturing activity.

According to IHS Markit’s PMIs (Purchasing Managers’ Indices), UK factory activity hit 47.5 in December, while the Eurozone’s reached 46.3, both below the 50.0 figure that signals growth. It’s that that British and European manufacturing activity is being dragged down, both by Brexit uncertainty, and the US/China trade dispute.

If this trend continues in 2020, it may affect the interbank exchange rate, although an improvement in manufacturing activity could be welcomed.

If you have an upcoming currency transfer and would like to learn more, you can contact me directly, Joseph Wright, on jxw@currencies.co.uk. I will endeavour to get back to you as soon as I can.