GBPEUR: What’s Moving the Rates this Week?

Sterling remains fragile against the majority of major currencies and it is likely to remain that way until we have clarity on Brexit. The pound is not the destination of choice during times of global economic uncertainty. This is due to the huge imbalance between imports and exports.

The pandemic is hurting the UK economy, but as this is a global economic issue it is not the key driver on Sterling value. Brexit seems to be the key market mover.

There still remain key issues that are yet to be resolved, fisheries seems to be the main point of contention. A deal must be in place by the end of October in order for it to be implemented. Boris Johnson is playing a dangerous game as he has stated there will be no extension to current trade talks.

It seems Brussels maybe using the time constraint as a weapon. Hoping that Britain will be desperate enough to get a deal over the line as to make concessions. The UK’s stance remains the same and Britain will not budge according to sources.

Could it be the case that Brussels are making it as difficult as possible for the UK to leave the bloc?

Barnier may have a mandate that he intends to stick to. It is not in the interest of the EU to give Britain a favourable deal for fear of other EU members following suit and leaving the bloc. Italy for example would be a prime candidate to leave having been vocal about their unhappiness on how funds have been distributed. Brussels are desperate to prevent a domino effect.

So, the latest round of talks have seen no progress made, with Barnier stating he thinks things have moved backwards. It could be that we are heading to a no deal scenario. Commerz bank are predicting that GBPEUR could hit as low as 1.02. I am not so pessimistic as the market moves on rumour as well as fact and a no deal could already be largely factored into to current rates of exchange. The historic average on GBP/EUR since the Euros creation in 1999 is 1.33, we now sit at 1.11.

I used to be of the opinion that if the UK got a deal we will see Sterling shoot up in value, now I am not so sure on the gains we will see. If a deal is hashed out it will depend on the quality of the deal as to how the markets react. It may be the case that we do not see GBP/EUR shoot above 1.20 if the deal is not all it is cracked up to be.

USD Losing Safe Haven Appeal

The US dollar is usually the destination of choice when there is a point of global economic uncertainty due to the US’s huge level of imports. The dollar’s status as a safe haven currency is starting to dwindle however due to the governments inability to combat the Covid-19 pandemic in an effective manner. The dollar has lost ground against the majority of major currencies of late as investors seek out other destinations for their funds. The euro could be the main benefactor.

The exodus could continue although there are rumours that there could be a big change to monetary policy from the Federal Reserve on Thursday in an attempt to boost the US economy. If you selling the pound to buy US dollar it could prove wise to take advantage of current levels.

As mentioned earlier it seems the Pound is doomed to remain fragile until we have clarity on Brexit, and even if we do get clarity in may mean no great shakes on the market depending on the outcome.

If you have a requirement involving GBPEUR it is worth noting that we have not now breached 1.12 since 9th June. It seems to be holding up as a firm resistance point. 1.11 may be the best we will get in the current market.

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