Pound Euro Exchange Rate Slides as Brexit Uncertainty Dominates
Last week’s high: €1.1601
Last week’s low: €1.1378
GBP/EUR Exchange Rate Slips as Odds of No-Deal Brexit Rise
Confidence in the Pound diminished over the course of the last week after MPs failed to pass an amendment ruling out a no-deal Brexit.
As Parliament instead opted to reject the Irish backstop in favour of Theresa May negotiating ‘alternative arrangements’ the GBP/EUR exchange rate plunged sharply on Tuesday.
With EU officials showing no appetite to reopen negotiations over the Irish border markets saw the odds of a no-deal Brexit increase.
However, as fourth quarter gross domestic product data revealed that the Italian economy fell back into a state of recession the appeal of the Euro soon soured.
This helped to limit the downside potential of the GBP/EUR exchange rate, with confidence in the health of the Eurozone economy fading.
A weaker-than-expected UK manufacturing PMI saw the Pound falter ahead of the weekend, though, as economic activity continued to slow in anticipation of the Brexit deadline.
Euro Outlook: GBP/EUR Exchange Rate Vulnerable Ahead of UK Services PMI
Further weakness may be in store for the GBP/EUR exchange rate if January’s UK services PMI fails to impress.
Any signs of a slowdown within the dominant services sector would further undermine market confidence in the outlook of the UK economy.
Demand for the Pound is also likely to diminish ahead of Thursday’s Bank of England (BoE) policy announcement.
If BoE policymakers indicate a greater sense of caution GBP exchange rates could shed further ground, with the odds of a 2019 interest rate hike continuing to fade.
After a negative run of Eurozone data, meanwhile, the Euro remains vulnerable to any fresh signs of slowing growth.
Confirmation of the European Central Bank’s (ECB) dovish bias in the latest Economic Bulletin could offer the GBP/EUR exchange rate a rallying point.
Key Events
5th February
09:30 UK Services PMI
10:00 Eurozone Retail Sales
6th February
07:00 German Factory Orders
7th February
09:00 European Central Bank Economic Bulletin
12:00 Bank of England Rate Decision
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Alastair Archbold
Foreign Exchange Manager