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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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To keep up to date with the Euro, visit the EUR blog in our Currency News section.

 

Alastair Archbold

Foreign Exchange Manager

aja@fcgworld.co.uk

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