Pound to Euro: Factors That Are Impacting GBP Value

Pound to Euro Exchange Rate Gains Almost 1% Yesterday

Over the last month the pound to euro rate has been range bound with mid-market exchange rates fluctuating between 1.1450 and 1.1050. To put this into monetary value, on a £200,000 currency transfer, clients could have achieved an additional €8,000 when you compare the high to the low.

Brexit

Last week UK and EU negotiators were back around the negotiating deal trying to thrash out a free trade deal. Unfortunately for clients that are purchasing euros with pounds, no major announcements were released, but head EU negotiator David Frost and Michel Barnier were slightly more optimistic that a trade deal will be reached, therefore the pound has remained stable against the euro for the time being.

All eyes now turn to the EU summit on the 19th of June. At the EU summit, key leaders will discuss everything from COVID-19 to the performance of the economy, and Brexit will be a key talking point. By the end of this month the UK will need to apply for an extension if they wish to pursue this route, however UK Prime Minister Boris Johnson has made it clear that this wont be the case, therefore the commentary coming from the EU summit could be key in shaping the direction of GBPEUR for Q3 of 2020.

Bank of England Interest Rate Decision

Also on the 19th June, the Bank of England will release their latest interest rate decision. With interest rates now at rock bottom, one of the options the Bank of England have is to move interest rates into negative territory. History tells us when a Central Bank cuts interest rates or decreases interest rates into negative territory this puts pressure on the currency and therefore loses value. In this instance making euros more expensive to buy.

Governor of the Bank of England Andrew Bailey has made it clear that the UK leave this option on the table but at present no decision has been reached. Essentially if banks use negative interest rates, they charge their clients money if they are saving. The idea is to force the consumer to spend in a bid to stimulate the economy. For the time being its likely interest rates will remain on hold at 0.25%, however COVID-19 restrictions could force the Bank of England’s hand in the months to come.

How is COVID-19 Impacting the UK economy?

Like many countries throughout the world that have been impacted by COVID-19, the UK economy has suffered due to the Government shutting down the economy. UK Prime Minister Boris Johnson informed the press yesterday that non-essential shops can open as of Monday as long as they stick to COVID-19 guidelines regarding social distancing. Furthermore, in a bid to save the hospitality sector, pubs and restaurants could open on the 4th July.

Over the last couple of months, Retail Sales numbers have taken a hammering, which is no surprise due to the High street being closed. Furthermore, the closure of the hospitality sector is putting major strain on the Government due to the amount of people that are furloughed, but reports are suggesting the longer the lockdown in this area the more pubs and restaurants will have to close and therefore unemployment will rise.

The problem the UK is the potential for second wave of COVID-19 infections. The Government’s ‘R’ figure that they have used in this process in marginally higher than it was in May according to Public Health England, therefore if there is a second spike and the economy has to be shut down once more, this could have a devastating impact on the value of the pound.

If you are looking to purchase a foreign currency with the pound, or have a foreign currency and need to purchase the pound, feel free to get in touch to get an in depth forecast on the specific currency pair you are looking to convert. The type of clients that I assist on a daily basis are business owners, people that are moving abroad or are moving back to the UK and people that have a one off transfer for a specific reason.

If you would like assistance, you can get in touch using the form below. I look forward to speaking to you in the days to come.