Pound to Euro forecast: Potential for Sterling weakness as European Union reiterates there will be no compromise on the Irish Backstop

Boris to Meet Juncker Today

Pound to Euro forecast

The timeline for Brexit does not bode well for the pound to euro exchange rate. Boris returns from parliamentary recess in early September which leaves less than 8 weeks to get a deal agreed on Brexit. This is something Theresa May failed to do in two and a half years.

Johnson has made it clear he is not willing to negotiate unless Brussels agree to drop the Irish backstop, this is something Brussels has stated they are not willing to compromise on numerous occasions.

Corbyn has said he will call a general election in an attempt to stop a no deal. It will be interesting to see how the markets react should this occur. Historically an election will hurt the currency in question due to political uncertainty, but in this scenario an election will decrease the probability of a no deal which could potentially strengthen Sterling.

Eurozone data disappoints: An opportunity for Sterling gains?

The euro is having it’s own troubles, losing value against the majority major currencies. Inflation has been very poor for several years and this situation worsened yesterday as Consumer Price Index (CPI) data (a measure of inflation) came in against expectations. The figures arrived at – 0.5% against a forecast of – 0.4%.

The European Central Bank (ECB) has hinted at changing monetary policy. Either a change in interest rates which would put the interest rate in a minus figure or monetary stimulus such as Quantitative Easing. Both of these have the potential to weaken the Euro. At the moment however I believe the current Brexit situation outweighs the problems in the Eurozone.

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