EURGBP to be Impacted by Brexit and Euro Strength

EURGBP to be Impacted by Brexit and Euro Strength

The euro has once again begun the week strongly, with EURGBP and EURUSD both trending upwards against this morning.

Economic data released out of Germany this morning, which reported on Factory Orders was actually disappointing in that the figures released were below expectations, but that has done little to halt the euro’s gains and EURGBP is trading at almost 0.9050 this morning.

Last week we saw the euro hit its highest level against the Pound in over 3-months as the pair climbed above 0.91 at the highest stage, and although the single currency has lost some ground since then the trend continues to be upwards for the euro. Trend lines almost never move in straight lines so I think that those of our readers monitoring the pair should remain vigilant and if we switch the pair around and look at the inverse rate, which is currently 1.1060, if it drops below 1.10 once again there could be another downward movement as the Pound is sold off. There tends to be support for the Pound at 1.10 because it’s a round number and a benchmark level so whenever the pair trade close to 1.10 it’s worth following.

Both the Eurozone and the UK have recently released Services data that demonstrates that there are recoveries in the sector from the dramatically reduced figures for May when both the UK and EU were in total lockdown. As the economies slowly reopen the markets will be keen to see how the recoveries pan out and this sector is particularly important for the UK as the services sector accounts for around 80% of economic output. I would expect any major shocks in these figures for the UK moving forward to illicit a response in the Pounds value so its worth following Services updates and PMI readings.

Another issue for the Pound, and for the UK economy revolves around the Brexit as time is running out for the UK and EU’s negotiators to agree to trade terms and announce that a trade deal has been made. One of the most recent updates from the UK’s Prime Minister, Boris Johnson is that he believes that he is more optimistic that a deal can be agreed upon than the EU’s chief negotiator, Michel Barnier. Johnson also commented that if a deal cannot be struck in time then other avenues will be explored which is a position he has maintained. We now know that the UK will not be requesting another extension to the transitional deal, so it is a certainty that the UK will be leaving on the 31st of January 2021.

Perhaps this reality, as June was the last chance for an extension request is why we’ve seen the Pound slowly drift and last months market movement of 0.887 up to over 0.91 at the highest stage demonstrates this as hope of another extension has faded.

Aside from the influence that Brexit talks and updates are having on the EURGBP rate, along with the euro’s strength overall the Pound is also having to deal with talks of the Bank of England potentially having to cut interest rates to negative levels for the first time in history. At the moment the rates sit at 0.1% and this is the lowest level in history. A move to negative territory would be unprecedented and media reports and rumours suggest that the BoE is preparing the city for the move so this is worth following if you’re concerned with the Pound’s value. Usually when a central bank hikes interest rates the underlying currency climbs, and when cuts are made the currently falls so this is worth monitoring.

Economic data is light throughout the week for both UK and EU based releases, with perhaps Wednesdays European Commission Economic Growth Forecast being the key release for the week. It will take place on Wednesday so feel free to register your interest with us prior to then. Aside from this release I would expect to see the EURGBP rate continue to be influences by both Brexit and COVID-19 related updates throughout the week.

Get in touch to discuss these factors in further detail, or to discuss an upcoming currency exchange involving euros. You can contact me directly using the form below, I’ll be happy to respond personally and discuss your requirements.