Pound to Euro rate near 26-week high on low ‘No Deal’ Brexit risk

GBP EUR Recovers from Early Losses on EU Trade

The pound to euro interbank exchange rate stands at 1.1624 today at the time of writing. This is just 0.21% below sterling’s recent 26-week high versus the Eurozone’s common currency, its strongest since May 8th.

In part, this is because, although there’s still uncertainty over Brexit and the UK’s general election, the financial markets think that there’s a very low probability of a ‘No Deal’ Brexit.

Meanwhile, looking to today, the Bank of England looks set to keep UK interest rates steady at 0.75%. That said, the central bank may cut its UK economic growth forecast and signal lower borrowing costs in future.

Sterling near highs as ‘No Deal’ risk believed low, in spite of election uncertainty

One reason why sterling stands near its 26-week highs versus the euro on the interbank market today is because, even though the UK will go to the ballot boxes on December 12th, it’s now thought unlikely that the UK will crash out of the EU without a deal.

After all, all the UK’s political parties, except for Nigel Farage’s Brexit Party, are campaigning on a platform of the UK leaving Europe with an agreement and Mr. Farage’s party is polling in fourth place.

In particular, Prime Minister Boris Johnson’s Conservative Party is polling at 36%, says the latest YouGov poll, a 16% lead over second-place Labour.

Traditionally, this would be enough to grant the winning party a majority of MPs in Parliament. So, this has helped to reassure the financial markets, thereby supporting the pound, although a lot can change during an election.

BoE likely to keep rates at 0.75%, may signal lower growth and cuts in future

Turning to today, the sterling vs euro interbank exchange rate could be influenced, by the Bank of England’s (BoE) latest interest rate decision, at 12.00 GMT.

The BoE looks likely to maintain UK borrowing costs at 0.75% but could reduce its 2019 economic growth forecast below its current 1.3%.

Moreover, although it would be unusual for the central bank to shift monetary policy ahead of an election, the BoE could even signal that it intends to cut UK interest rates in 2020.

This would be to support the UK’s economic growth, which has shown signs of flagging recently, due to the Brexit uncertainty. This too may impact the value of sterling.

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