Threat of No-Deal Brexit Causes GBP to EUR Rate to Tumble

Was the Pound’s Sell-Off “Overdone”?

The pound to euro rate wasn’t full of festive cheer after it fell to a four-week low on Monday. The pair experienced a surge in value in the immediate aftermath of the general election. However, optimism inspired by the Conservative’s huge majority, and subsequent mandate to “get Brexit done”, has since subsided. This has been replaced by fresh concerns that the UK could be on course for a no-deal Brexit, following the government’s decision to make it illegal to request an extension to EU alignment beyond 2020. In doing so, Mr Johnson has made it clear to the EU that the end of next year is a hard deadline. Therefore, if an agreement isn’t reached by then, the UK is prepared to walk away without a trade deal. These fresh Brexit concerns served to reverse the modest gains generated by last Friday’s improved UK Consumer Confidence Index.

Sentiment towards the euro improved at the start of the week, courtesy of better-than-expected German Import Price Index figures. The monthly price index ticked up from -0.1% to 0.5%, raising hopes that inflationary pressure within the Eurozone’s largest economy could increase next year. This might encourage the European Central Bank to keep interest rates on hold in the early part of 2020, limiting the risk of further euro weakness. The pound, on the other hand, didn’t have any economic data to digest last week, with its calendar completely empty during the Christmas break.

Looking Ahead

The pound is craving clarity over the UK’s future relationship with the EU. Unfortunately, Parliament remains on Christmas recess until 5 January, meaning political headlines will be few and far between until then. Therefore, the potential for a cliff-edge Brexit looks set to keep the GBP vs EUR rate under pressure in the coming days.

UK economic data is back on the agenda next week. We kick off with Mortgage Approvals on Monday but must wait until Thursday for influential figures when the Markit Manufacturing PMI is released. This is followed by a raft of data on Friday, including Nationwide Housing Prices and Markit Construction PMI. The pound will be hoping for some positive indicators about the health of the UK economy, to take its mind off the threat of a no-deal Brexit.

German data releases dominate the Eurozone’s economic schedule next week: Retail Sales on Monday, Markit Manufacturing PMI on Thursday and the Unemployment Rate and Consumer Price Index on Friday. If the Eurozone powerhouse economy can gather some much-needed momentum in the fourth quarter, the euro could begin 2020 on the front foot.

If you would like to learn more about factors influencing GBP/EUR exchange rates for an upcoming currency transfer, feel free to contact myself, Jonathan Watson, using the form below.