The GBP/EUR exchange rate was sent racing higher this week on renewed hopes that a Brexit deal could be reached by the UK and EU.
Pound Rocked by Brexit Headlines
It’s been another session of ups and downs for the Pound this week as another flurry of Brexit developments kept investors on their toes.
GBP/EUR exchange rate was initially sent tumbling to a fresh one-month low on suggestions that Brexit talks were on the verge of collapse.
Sources within Downing Street claimed a deal was ‘essentially impossible’ following a phone call between Boris Johnson and German Chancellor Angela Merkel.
However there was a dramatic shift in sentiment in the second half of the week. Sterling skyrocketed after hopes of a deal were revived by Johnson and his Irish counterpart Leo Varadkar, who said they could see a ‘possible pathway’ to a deal in a joint statement on Thursday.
These gains were then extended at the very end of the week following a positive meeting between Brexit Secretary Steve Barclay and EU chief negotiator Michel Barnier.
For EUR investors this week the focus has mostly been on Germany, with some mixed industrial data from the country limiting the upside in EUR/GBP in the first half of the week.
Also influencing the Euro have been headlines surrounding the European Central Bank (ECB), with signs of growing divisions in the bank over its recent reintroduction of its quantitative easing programme providing some support for the single currency.
Will a Brexit Deal Be In Place for the EU Summit?
Brexit sentiment will continue to dominate the Pound next week, ahead of the EU summit on Thursday.
This will effectively be the deadline for the UK and EU to ratify a Brexit deal before the UK is due to leave on 31 October.
Should a deal be in place in time then we could see the Pound push highs not seen since 2016.
While UK data will likely be overshadowed by Brexit, we may see Sterling offered some support if domestic employment and inflation figures both print positively.
Meanwhile, the focus for EUR investors at the start of next week will be on the latest ZEW economic sentiment survey, with the Euro potentially facing some losses if sentiment in the Eurozone deteriorated again in October.