The euro to pound exchange rate closed out a rollercoaster year with a strong close in the pound’s favour as the Brexit process finished smoothly.
After the euro had mounted a move back above the 0.9000 level last week, the final approval by the U.K. Parliament added to hopes for an easy transition and the pound rallied to close the year in a bullish posture.
EURGBP was trading at 0.8930 and is now eyeing the November support levels at 0.8870.
Pound Will Seek Stability After Volatile Year
The year proved to be a rollercoaster for the EUR to GBP exchange rate due to the Brexit issue and the emergence of the coronavirus. After opening 0.8540, the pair saw lows of 0.8282 and then soared to almost 0.9500 during the height of the market panic. Following those wild swings, the pair then settled into a range in the second half of the year.
From June to year-end the euro and sterling rate has bounced between the 0.9175 resistance and the lows at 0.8870. When the markets re-open for a fresh investment year, it is likely that the pound will test that lower level as Brexit risk evaporates.
With the two sides escaping trade tariffs and other risks, short pound bets will decrease, and fund managers and investment houses could see the U.K. and the currency as undervalued.
The pound will also have future safe haven status if there are issues in Europe and this will add to its attractiveness.
No Let up for Lockdowns
The new year will start in a familiar setting as the U.K. is trapped in government-imposed lockdowns over the coronavirus. Fears of a new strain spreading have seen scientists warning that even a March-style national lockdown may not be enough to hold back the tide of cases.
The U.K. and Europe have begun their vaccination programs for the virus, but the government in the U.K. has also warned of vaccine shortages as production struggles to meet demand and the path is not clear for the new year. There are concerns that the country will see tired lockdowns until at least the spring and there is also an ongoing hit to the travel industry.
The currency outlook for the euro and pound will hinge on the length of these lockdowns and their effect on the economies. Further restrictions and damage to the economy will also see further central bank action after a big year for debt-fuelled assistance in markets.
European nations are also seeing a rise in the new strain and the dynamics of this will decide where the currencies of Britain and the Eurozone trade. Sterling should see a post-Brexit bounce as the new year gets underway.
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