The pound has fallen lower having made some initial small inroads against the euro this week. Rates for GBP vs EUR fell to 1.1718 yesterday after Bank of England Governor Mark Carney hinted that more stimulus from the central bank could be on the horizon. It follows comments form the EU trade team that a delay may be necessary to allow time for a trade deal between Britain and the EU.
UK-EU Trade Deal Fears to Cause Volatility for Pound to Euro Exchange Rates
With a new UK government in place the conversation of 2020 will focus on the complex issues of trade between the UK and EU after 31st January, the date when Britain officially leaves the European Union. Now that legislation has been passed that will prevent any extension of the transition period beyond the end of 2020, the pound vs euro exchange rate is likely to see considerable volatility over the year. Ultimately the markets will pay close attention to any signs that prime Minister Boris Johnson could move to allow for a small extension or whether he will stick to his guns and ensure a trade deal is in place by the year end. As we have seen over the last three and a half years, whenever there is an increased likelihood of a no deal Brexit the pound has generally weakened. The legal text which ensures Britain will leave the EU on World Trade Organisation trading terms, if no agreement is reached, effectively leaves the door open to a no deal Brexit, something that all sides say they wish to avoid.
Economic data in the UK has performed poorly in the first 10 days of January with weak manufacturing and construction data leading the decline. The EU have also had a run of poor data with Germany in particular faring very badly. It has been reported that German car production fell to its lowest level in 23 years as the engine room of the economy continues to face headwinds across different fronts. The ongoing US China trade war, Brexit and a slow entry into the electric car market have all contributed to a decline in the German car industry which bodes badly for euro exchange rates.
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