Pound to Euro exchange rate forecast: Sterling rates continue to suffer from Brexit uncertainty

GBP EUR Higher After European Central Bank Rates

GBP/EUR exchange rates continue to suffer due to Brexit Uncertainty

The pound to euro rate has hit a 23 month low this week. This can largely attributed to the higher probability of a no deal. The more likely a no deal is the potential outcome of Brexit the weaker you would expect sterling to become.

Boris will now have difficulty passing through any changes in legislation as the Conservatives lost to the Lib Dems in the Brecon and Radnorshire by-election. Boris now only has the majority by one seat.

Boris ramps up preparations for No Deal Brexit

The new PM stated recently that he would be ‘turbocharging’ preparations for a no deal which caused further weakness for sterling. His attempt to use a no deal as ammunition to gain a more favourable deal is a dangerous one and he is adamant the UK will leave with or without a deal. Brussels stance has remained the same, there will be no concessions made to the deal currently on the table. It is not in Brussels best interest to offer the UK a favourable deal, they are trying to avoid a domino effect where other countries would follow suit. Italy for example are currently in huge debt, it now surpasses their GDP. The EU has threatened to impose a €3bn fine which will not sit well with Rome.

The time scale for Brexit does not bode well for sterling. Parliament is currently in recess until 3rd September leaving less than two months to find a Brexit resolution. Keep in mind Theresa May failed to get Brussels to budge in two and a half years. There are also rumours circulating that there could be a general election which would only create more political uncertainty and has the potential to cause further falls for sterling.

Poor Eurozone economic data

The euro is struggling with very poor economic data and inflation still remains a major concern. Mario Draghi, the President of the European Central Bank (ECB) has stated he will be willing to change monetary policy in order to stimulate growth which did cause weakness against the majority of major currencies. The problems with the UK however do seem to outweigh the problems in the Eurozone at present.

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