The pound to euro rate fell during trading on Thursday afternoon after Prime Minister Boris Johnson said there was a, “strong possibility” that talks would fail. The GBP to EUR rate has slumped to close below the 1.1000 figure for the first time in six weeks and there is a risk of further losses as we enter a weekend with little optimism of an agreement.
The euro was also boosted by the latest European Central Bank (ECB) meeting where the central bank held back from a larger-than-expected stimulus package.
Boris Johnson Fires Warning as Sunday Deadline is Set
Boris Johnson warned of a No Deal Brexit outcome after his failed Brussels trip to meet with the EU Commission President. Johnson said there was now, “a strong possibility — that we will have a solution that is much more like an Australian relationship with the EU than a Canadian relationship with the EU”.
The two negotiating teams have now set a Sunday deadline for talks but after weeks of wrangling over the same issues it is hard to see any real change. A failure to reach agreement this weekend could raise the volatility in markets into year-end. Institutions could look to take profits and adjust their exposures to a No Deal environment in early-2020 where WTO tariffs would take effect.
ECB Pulls Back from Fireworks at its Final Rate Meeting of the Year
The European Central Bank gave the euro another boost versus the pound after the bank pulled back from a “bazooka” stimulus program. Policymakers in Brussels went with the €500bn extension as expected, but warned that, “uncertainty remains high, including with regard to the dynamics of the pandemic and the timing of COVID vaccine rollouts”.
Analysts anticipated the program extension but there was speculation that the package would be larger to try and move the euro rate lower. In recent weeks we have seen currencies rallying on further stimulus as it boosts the potential for growth in 2021. This maybe trapped the ECB in a corner with the recent euro strength and they have held back on this occasion.
German inflation was released this morning and the number came in at -0.3% as expected and the central bank will likely wait for a vaccine-related bounce before they judge the longer-term deflationary pressures. The pound to euro rate will now move into the weekend and a potentially volatile market open on Sunday and Monday.
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