The pound to euro exchange rate was still holding the 1.100 level but there is a big risk of volatility into the weekend as talk of a No Deal Brexit returns. GBP v EUR was trading at 1.1030 after a dip lower over the last two days but the path ahead today will still hinge on headlines from Brussels.
Mood Sours on a Deal as Talks Continue
Michel Barnier, the EU Chief Negotiator told a meeting of EU ministers that a no-deal scenario at the end of year deadline was the likelier option. Ireland’s leader Micheal Martin was also pessimistic about the chances of both sides reaching a positive conclusion. Martin told Parliament:
“Unfortunately we are facing the prospect of a no-deal Brexit if something doesn’t break that in the next day or two”.
Talks will continue in Brussels today as UK Prime Minister Boris Johnson heads across the channel to try and push negotiators over the finish line. Fishing rights and common ground on business regulations have been a sticking point despite previous suggestions that a deal was 97% completed. An EU summit tomorrow and Friday would have been an opportunity to present a deal to the leaders of the 27 bloc countries but that looks to be fading. The UK is set to leave at year-end and without a deal, trade between the two countries would revert to WTO rules and tariffs. The temporary structure could also cause delay that the ports.
ECB Stimulus Increase Will Add to the Volatility Tomorrow
Thursday will also see the European Central Bank (ECB) announcing their latest moves on interest rates and monetary policy. The bank should hold rates steady, but analysts are expecting new stimulus measures to dominate the meeting.
The ECB has committed to a huge stimulus program year with economists predicting that it could reach up to 1.8 trillion euros for the year. Further purchases of government bonds are expected alongside cheap loans for banks.
The euro outlook was boosted by a move higher in the German ZEW economic confidence index yesterday. The figure came in at 55 versus expectations of 45.5 as investors cheered the vaccine development and the potential of an end to lockdowns. The GBP to EUR rate didn’t see much movement on the news but traders are nervous about the bigger picture events this week.
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