Will the Euro Continue to Strengthen Against Sterling?

Euro to Pound Rate Dips following German Lockdown

Over the last 8 weeks the euro to pound exchange rate has seen consistent gains. To put this into context, mid-market exchange rates have increased from 0.8694 to the currency mid-market level of 0.9070.

Why Has the Euro Strengthened so Much Against Sterling?

There are many reasons why exchange rates fluctuate, however within this section of the article I have picked out a few. Firstly, the UK confirmed they would not extend the trade talks with the EU past the end of the year. The deadline for asking for an extension was the end of June. So theoretically the UK will either secure a deal or crash out at the end of the year. Secondly, Covid-19 had a major impact on the UK economy. Growth, inflation, manufacturing, Retails sales and the list goes on all declined over the last 3 months, however it was to be expected due to the UKs lockdown. Nevertheless, this has caused sterling to gradually decline against the euro. In addition, many companies within the UK including Airbus, Easyjet, TM Lewis have all confirmed that they may have to cut jobs in the near future.

Why Did the Euro Fall Against Sterling Yesterday?

Throughout yesterdays trading period the Euro lost value against sterling due to the Bank of England and UK Prime Minister Boris Johnson comments. Bank of England economist Andy Haldane told the BBC that the UK economy is on track for a V shaped recovery. He believes consumer spending is high and now that the UK is set to reopen more of its economy this will encourage more people to spend. However, he did raise concern regarding unemployment which was a concern. As of next month, UK employers will have to start paying a part of employees that are furloughed therefore this could be the start of companies making redundancies.

‘Build Build Build’ was UK Prime Minister Boris Johnsons latest slogan yesterday, which provided optimism for the pound. The PM announced £5bn spending plan on infrastructure in a bid to create jobs and kick start the economy. Theoretically this is great news for the UK and the economy, however there are risks. If the UK Government are adamant that they want the UK economy performing to pre pandemic levels sooner rather than later, this increases the risk of a second wave. If the UK had a second wave similar or worse than the first, then this could have a devastating impact on the UK economy and its something the Government will be cautious of.

What Next For the Euro Against Sterling?

This evening the US is set to release their latest interest rate decision, and as EURUSD is the most traded currency pair globally, US interest rate decision have an impact on EURUSD exchange rates. Last month Jerome Powell was extremely dovish regarding interest rates and I wouldn’t be surprised to see a similar stance. This tends to have a knock on effect on how the global recovery is perceived which could then lead to the US dollar strengthening due to its safe have status, which in turn could have a negative impact on the Euro but also sterling.

Tomorrow the UK will release their latest Purchasing Managers Index numbers, which is an indication of the health of the UK economy. These are last months numbers, therefore it will be interesting to see if the PMI numbers increased as the lockdown was eased. Anything above 50 shows growth, however the numbers are expected to be released below 50.

Looking further ahead, clients should keep a close eye on the Brexit negotiations as I expect this will be a key driver for EURGBP exchange rates in the months to come. At the moment a no deal Brexit looks more likely and that’s why sterling is performing badly, however if there is a breakthrough, like previous years the pound could rally. If you are buying or selling euros in the weeks and months to come and would like further information regarding exchange rates, feel free to fill out the form below. The types of client I look after are owners or companies, finance directors and people that are buying or selling property.

You can get in touch with me directly to discuss these factors, using the form below. I’ll be happy to respond personally.