Pound to Euro Forecast This Week – Brexit Back in Focus

GBPEUR and Brexit; When is a Deadline a Deadline?

The pound to euro exchange rate has fallen lower against the euro to 1.1032 after a rally higher this week which saw levels for the GBP to EUR pair break over 1.11.

The Brexit negotiations have resumed this week into the seventh round of discussions to try and find a breakthrough deal that can solve the contentious issues of the level playing field, state aid and fisheries. Significant gaps still remain between the two sides although a spokesman for Downing Street said earlier this week that the government hoped that a deal could be reached in September. The EU have said previously that a deal must be reached in October “at the latest” for that deal to be ratified.

Those looking to buy euros should pay close attention to all the latest developments as any soundbites this week from either side could see a major shift in the price of GBP EUR. As the last four years since the EU referendum have shown the markets respond very quickly to the deal/ no deal scenarios.

The euro vs pound is currently around 5 cents stronger that the levels seen following the lockdown in the UK when GBP EUR hit its highest levels in the recent trading range. For those looking to sell euros the rates are currently more attractive to buy pounds when looking at the highs and lows over the last 4 months.

Euro exchange rates look set for more volatility after the Eurozone has seen the number of those employed fall by 5.5 million which has been described as the sharpest declines seen since the data was first compiled in 1995. The negative impact of COVID-19 on the EU labour market continues to be felt in the EU bloc and the headline unemployment number is likely to rise higher in the months ahead. As furlough schemes across Europe also come to an end as it will in Britain there is likely to be a sharp shift higher which could derail the economic recovery following Coronavirus.

There have been some signs of economic recovery in the EU however. The manufacturing sector has seen output increase and exports rise by about a third. Purchasing Managers Index data for the services sector released on Friday could make for interesting reading to end the week. Any further signs of growth in the sector could provide a boost for the EU and euro exchange rates.

Let’s not forget the concerns though of a second wave of the pandemic. If there is a second wave of COVID-19 cases, something which is widely accepted may happen, this could carry significant implications for the global economy beyond what has already been seen. It is widely accepted that governments will not be able to continue with the mass spending to fund workers who have been furloughed and all the other measures that have been put in place to keep economies afloat. The British government has suggested that there would not be another lockdown, but that’s not to say there won’t be measures in place to restrict movement and the spread of the virus.

The EU entered recession after the economy contracted by 12.1% with the likes of Italy, Germany, France and Spain all reporting contractions to their respective economies that were over 10%.

UK Unemployment in the Months Ahead

UK unemployment is expected to climb higher in the months ahead as the governments furlough scheme comes to an end. The Bank of England has forecast the level of unemployment to climb to around 7.5% by the end of 2020 where it should peak. A number of high-profile companies such as Boots and John Lewis have already announced job losses. Yesterday saw the announcement of 7,000 job losses from well-known high street name Marks and Spencer. There is a lag between what is happening in real time in the UK and the actual numbers which makes the labour market data for both the UK and EU very important to watch out for I the weeks and months ahead.

Head of economics Suren Thiru from the British Chambers of Commerce said “While the headline data continues to lag behind the reality on the ground, the decline in the number of employees on payrolls and hours worked is further evidence of the damage being done to the UK labour market by the Coronavirus pandemic. A sharp rise in unemployment could hamper a much needed economic recovery in Britain following the onset of the Coronavirus.

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