The GBP/EUR exchange rate plummeted over two cents last week as Boris Johnson’s move to legally block any extension to the Brexit transition period stoked fears of a no-deal Brexit.
GBP/EUR Nosedives as Johnson Seeks to Block Further Brexit Delays
The Pound fell sharply against the Euro and the majority of its other peers this week, relinquishing all of its post-election gains in response to renewed no-deal Brexit jitters.
This comes after Boris Johnson announced he would include a clause to his EU Withdrawal bill, which would legally block any extension to the Brexit transition period past December 2020.
Markets feared this creates the risk of a new Brexit cliff-edge as Johnson leaves himself just eleven months to successful negotiate the UK’s future trade relationship with the EU.
Also putting pressure on Sterling this week was the Bank of England (BoE) as it struck a dovish tone following its final policy meeting of 2019.
While the BoE kept rates on hold this month as expected, the splitting of the vote and a cautious outlook for the coming year stoked expectations for a rate cut from the bank in 2020.
On top of this the UK published a slew of mostly gloomy economic data throughout the week, with softer inflation, wage growth and retail sales figures further undermining GBP exchange rates.
Meanwhile, the Euro enjoyed a strong start to week, rocketing higher through the first half of the session, mostly on the back of broad weakness in its peers.
However, the single currency struggled to carry through this momentum into the latter half of the week, as the absence of any notable data left it vulnerable to a resurgence in the US Dollar.
Christmas Holidays to Create Thin-Trading Conditions
Looking ahead to next week’s session, it’s likely we will see only very limited movement in the Pound and Euro as lack of any notable economic data coupled with the closure of the European and UK markets for the Christmas period will create thin-trading conditions.
However Sterling may remain vulnerable to further losses if GBP investors feel the risk premium of a no-deal Brexit next year hasn’t been adequately priced in.