The GBP/EUR exchange rate faced more volatility this week as the pairing was rocked by considerable concerns over Brexit.
Pound Rocked as Risks of a No-Deal Brexit Surge
The Pound got off to a poor start this week, amid reports Boris Johnson was willing to walk away from Brexit trade talks following unsuccessful negotiations over the weekend.
While GBP exchange rates recouped some of these losses on Wednesday following an agreement between the UK and EU over post-Brexit border checks in Northern Ireland, this recovery proved extremely short lived.
The renewed pressure came as crunch talks between Boris Johnson and European Commission President, Ursula von der Leyen on Wednesday evening failed to deliver a much-needed breakthrough.
This gave way to significant selling pressure on Sterling through the second half of the week, particularly after Johnson warned there is a ‘strong possibility’ the UK and EU will not reach a trade agreement.
Meanwhile, after struggling to find momentum in the first half of the week, the Euro roared higher in the latter half of the session, in the wake of the European Central Bank’s (ECB) latest policy meeting.
This resulted in the ECB expanding its stimulus programme by an additional €500bn as expected, with the bank’s decision not to comment on the current strength of the EUR exchange rate, despite its recent surge making it more difficult to boost inflation, further lifting the single currency.
Sterling Set to Collapse if Brexit Talks Fail
Looking ahead to next week, the direction of the Pound to Euro exchange rate will largely depend on the outcome of this weekend’s trade talks between the UK and EU.
In the seemingly likely outcome that the two sides are unable to reach an agreement, then it’s safe to assume we are likely to witness a dramatic plunge in GBP exchange rates.
Of course, should a deal be found the Pound is poised to surge.
Also influencing Sterling sentiment next week will be the Bank of England’s (BoE) latest rate decision. No policy changes are expected from the BoE this month, but GBP investors are likely to keep an eye on for the bank’s outlook for 2021.
Meanwhile, in the spotlight for EUR investors next week will be the publication of the Eurozone’s latest PMI figures.
December’s preliminary figures are forecast to show that growth in the bloc’s private sector continued to contract, potentially putting some pressure on the single currency in mid-week trade.