EURGBP Rate Falls with Shift in Negotiation Stance

Buying euros with pounds has remained relatively expensive when compared with levels seen at the start of the month. Indeed, the latest GDP data from the UK this week has helped reverse investor appetite in favour of the pound with EURGBP now trending below the 0.91 mark on interbank exchange rates. Though release is marked down as the second largest quarter drop, with a contraction of 19.2%, these levels were far better than the Bank of England had initially laid out in their forecasts for the summer of 2020 given the circumstances. It will be interesting to see if this is repeated in the final phases of this year, in which case a more expensive pound sterling could be expected.

Arguably however, this trend was initially set when the EU’s negotiation stance seemed to have softened. Indeed, much of sterling’s initial woes in September might have stemmed from the UK prime minister’s proposed legislation changes which could have potentially set Brexit talks towards a no deal scenario. Since then however, EU negotiators have softened their demands and appear to be far more receptive to UK proposals.

If you are in the market for pounds and are holding euros it might be slightly disconcerting how quickly your returns are affected by shifts in stance between the UK and in the EU, particularly given the fact that we are now in the final stages of talks. It might be worth keeping an eye on the EU summit due on the 15th and the 16th of October as a result.

Is the Lack of a Defined Plan Stopping the Euro From Getting Stronger?

Given the positive strides the single currency was making back at the start of September, those with a EURGBP requirement might be perplexed as to why the currency has stalled quite as much as it has as the month comes to a close. Though dynamics globally might be playing a greater role in appetite for the euro, the varied response within the bloc could also be a determining factor. Indeed, the ongoing impasse in Madrid, as the government struggles to contain the spread of the virus in the capital, might be capping investor confidence. Equally, the European Central Bank have also asked for Brussels to make their relief program proposal a reality after months of talks.

On the flipside, both France and Portugal have managed to produce growth figures throughout the summer that surpassed the markets expectations, leading the European Central Bank to forecasts losses of just 8.7%, down from the 10.3% mark that was initially touted.

It will be interesting to see if this morning’s inflation data will set EUR exchange rates onto new levels as the week comes to an end. The ECB might take the view added stimulus is needed should levels continue to stagnate. Investors will be looking for a reaction across the region given the extensive support program that has been rolled out by the Central Bank since the spring and a pick up in prices might go a long way to helping the euro establish itself on the international stage.

Get in touch to discuss these factors in more detail, and the tools available to limit your exposure to the quickly changing currency markets.

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