GBP/EUR Exchange Rate Underpinned by Cautious Brexit Optimism
The GBP/EUR exchange rate has traded in a wide range over the past week, in response to mixed Brexit headlines.
Pound Rocked by Brexit Developments
The Pound got off to a poor start this week, with the currency retreating amidst fears over a lack of progress in Brexit trade talks, which dashed hopes that a UK-EU trade agreement could be in place in time for this week’s EU summit.
However, the tone around Brexit quickly shifted, following reports that the UK’s chief negotiator, David Frost had told Boris Johnson that a deal could be ready ‘early next week’.
Alongside some upbeat UK inflation figures, this prompted some cautious optimism amongst investors and propelled the GBP/EUR exchange rate above €1.12 in mid-week trade.
But Sterling struggled to stabilise at its best levels, retreating through the second half of the week as renewed Brexit pessimism offset some surprisingly robust UK retail sales figures.
The Euro, meanwhile, opened the week on some strong footing, being bolstered in upbeat trade on Monday as US biotech firm Moderna announced that its Covid-19 vaccine candidate has been 94.5% effective in phase 3 trials.
However, these gains proved short lived, with the euphoria around the vaccine quickly evaporating amidst concern over some alarming coronavirus statistics coming from Europe.
The Euro also struggled to capitalise on the Pound’s weakness through the second half of the week, after European Central Bank (ECB) President Christine Lagarde warned about the economic damage being wrought by the Eurozone’s second wave of coronavirus infections.
Could a Brexit Deal Actually be Reached Next Week?
Looking ahead, it’s safe to assume that Brexit will remain top of the agenda for GBP investors next week, as they wait to see if there is any truth over recent claims that a UK-EU trade deal could be agreed.
Should a deal be signed then we can expect to see the Pound to Euro exchange rate rocket higher next week, while the failure to reach an agreement is likely to cast Sterling lower.
Otherwise, the focus next week looks to be on the latest PMIs,
November’s preliminary figures from both the UK and Eurozone are expected to report a contraction in private sector activity in response to new lockdown measures.
As a result, both the Pound and Euro are likely to struggle at the start of the week, as the slump in activity will fuel fears of a double-dip recession this winter.