The pound to euro exchange rate has been performing better in 2020 for Euro buyers with pounds, as the interbank ranges from 1.1648 to 1.1920 have been seen. This is in contrast to the 1.0647 – 1.2060 ranges we saw in 2019. Whilst we are only 6 weeks into 2020 the pound has been enjoying a higher range against the euro than last year, as demonstrated above. Will the pound to euro rate rise to 1.20, or could we seen levels falling once again and testing those 2019 lows of 1.0647?
Strong UK Economic Data Releases
Whether this can continue will depend on various factors including the outlook on Brexit and also the performance of the UK and Eurozone economy. At the time of writing GBPEUR has hit 1.1881, in part owing to some generally positive data yesterday on the UK economy. On the topic of the UK economy, a series of strong UK data releases has helped the pound to regain some form. The Services, Manufacturing and Construction sector all posted gains, and the UK was 3rd fastest growing economy amongst the G7 countries in 2019. The British economy did stagnate in the final quarter, but by posting stronger economic growth than many in the Eurozone, including France, Germany and Italy, the UK is perhaps not in too bad a position and it makes sense for us to have seen a rise against the euro on this news. 1.20 is not too far away as we get close to the interbank highs of 1.1920 seen on the 31st January, but we will also need some more serious news to take us to this point.
On the topic of Brexit, investors will need to better understand the market to make more decisions. So far, the approach by the UK government has been to pursue a unique ‘free-trade’ deal with the EU and also the wider world, outside of the safety and security of the EU single market and customs union. With no imminent deadlines, sterling may now trend in a rangebound manner as investors await something more decisive. In the absence of any new news on Brexit, investors are aware that there is plenty of time before they need to panic. It is worth noting that the big swings downward for sterling last year in August, when GBPEUR fell to 1.0647, were as the October no-deal deadline approached. Whilst some might argue no-deal is still a very real prospect again, with no immediate deadline approaching the market is being understanding about what lies ahead.
Whilst 10 months is a very long time in the currency market, it is not really seen as long enough by many to conclude the future trading relations between the UK and the EU. Sterling may well continue to react to the headlines on Brexit but the lack of any immediate deadline may dampen investor’s appetite to fully commit a decision. 1.20 is not too far away but may need some more decisive news to get us above the level and more importantly for us to stay there. This is based on previous behaviour on GBPEUR, where we have seen a certain level of resistance at 1.20 is, and on many occasions (like just before Christmas) risen above it very briefly, only for it to suddenly fall back down.
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.