Pound to Euro Could See Fireworks Into the Weekend

GBP EUR Exchange Rate Trading at a Key Level

The pound to euro exchange rate lower in early Thursday trading after Brexit talks stumbled again. The pair is 0.75% lower at 1.1011 and the pair could see real volatility into the weekend due to the trade talks and a European Central Bank (ECB) interest rate announcement later today volatility into the weekend as talk of a No Deal Brexit returns.

The GBP to EUR has initial targets at 1.1280 on the upside and 1.0800 on the downside.

Boris Johnson’s Trip to Brussels Proves Pointless

Boris Johnson’s trip to Belgium, which was seen as an effort to save the Brexit talks, looked rather pointless after he and EU commission Chief Ursula Von Der Leyen failed to find any common ground.

Von Der Leyen told reporters:

“We had a lively and interesting discussion on the state of play across the list of outstanding issue. “We gained a clear understanding of each other’s positions. They remain far apart.”

It’s probably a little late to be gaining an understanding of each other’s positions and the schedule for the EU summit today and Friday is unlikely to include the approval of a trade deal between the two sides.

The negotiations will continue for the next few days and a UK source was quoted as saying a “firm decision” would be needed by Sunday. Traders should be wary of positioning over the weekend as we may start next week with a volatile No Deal trading environment.

ECB Meeting Will Now Dominate the Price Action Into the Weekend

All eyes will be on Christine Lagarde and the European Central Bank today and this will be a key driver of the sterling to euro as Brexit takes a backseat. The ECB will announce their last interest rate and monetary policy moves for the year.

Analysts expect the ECB to increase its emergency bond purchase program by €500 billion to bring the total to €1.85 trillion. The bank is unlikely to change interest rates, but government debt yields are still very low, so it has the same effect. The real potential for a surprise will come from the bank’s weak appetite for a higher euro exchange rate.

The bank was critical of the euro’s effects on inflation where prices in the Eurozone are in deflationary territory at -0.3% compared to 0.7% in the likes of the UK. The ECB may seek to address this by pushing the euro lower through a larger-than-expected stimulus program.

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