The pound to euro exchange rate has fallen lower with rates falling to a low of 1.1292 for GBPEUR this morning whilst the pound to US dollar exchange rate has also fallen to a low of 1.2250. The pound has found some support following the UK Gross Domestic Product (GDP) numbers released first thing this morning. The data showed the UK economy contracted 2% in the first quarter but there was a noticeable sharp fall in the march numbers as to be expected. The quarter on quarter figures are the weakest since the financial crisis of 2008 whilst the monthly figures for March are the worst on record. How that data performs in the months to come will be crucial to help evaluate the negative hit COVID-19 has had on the British economy. Manufacturing and Industrial production data also took a fall to -9.7 and – 8.2 respectively, highlighting just how badly these sectors have been hit. The Bank of England has suggested that there could be a plausible hit to GDP in the department of 14% which could carry significant consequences for the pound. How other economies fare from COVID-19 and how quickly they can come out of the crisis will also determining the strength of those individual currencies.
The weakness in sterling has come about despite further announcements from the government this week to try and restart the British economy. The furlough scheme will now continue in similar form until October in a bid to protect businesses and employees alike. The cost of this however is estimated to be huge and possibly in the region of £80 billion. Those funds must come from somewhere and it has been suggested the government may need to put up taxes to bring the accounts to more manageable levels. Manufacturing businesses are also starting to come back online this week even if at reduced capacity so that social distancing and safety of workers can be employed. Nurseries in the UK and potentially primary schools could open as soon as June in a sign that the UK is about to enter another phase with the Coronavirus. The government continues to try and achieve the right balance of reopening the economy to quickly and risk a second wave of infection or starting too early and risk long lasting damage to the economy. Those looking to buy or sell pounds would be wise to plan around the latest COVID-19 updates.
How Will Brexit Impact Pound to Euro Exchange Rates?
Brexit meanwhile is still moving quietly along behind the scenes. Last week the UK started negotiations with the US in a bid to agree a trade deal worth £15 billion to the British economy. The UK is carrying out these talks in parallel with the EU trade discussions in the hope of getting a better deal with the EU. There is an important EU summit at the end of June where it may become clear whether or not a UK EU trade deal will be reached. Expect considerable volatility for sterling exchange rates in the run up to this summit and any statements made could see major movement for the pound to Euro exchange rate. Those looking to buy or sell Euros would be wise to plan around this important date. As we have seen over what has been almost 4 years since the 2016 referendum, the pound has moved considerably on the prospect of a deal / no deal outcome. Generally, whenever the no deal option has looked credible the pound has weakened whilst the markets have responded positively for the pound when a deal looks possible. There has also been pressure mounting on the government to extend the transition period although the government’s stance to date is that it will not extend. The UK and EU have until the end of June to decide whether or not to extend.
The Financial Times has reported that the government wishes to reduce its exposure to the port of Calais which is well known for industrial disruption. By increasing the scale of ports along the East coast of the UK the government appears to be strengthening its hand in the Brexit negotiations especially where the contentious issue of fisheries is concerned. Any blockage at Calais could see major problems for the flow of goods across the channel. The political hot potato which is fisheries has been little discussed to date in the Brexit negotiations and the could be some heat from this sector from either the UK or EU as terms are finalised and the exchanges will no doubt be interesting to watch.
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