Sterling bounced back on Friday after the news that EU leaders have said they would begin preparations to move Brexit talks to the second phase. This was a positive move, and contrary to the ‘deadlock’ that had been mentioned previously. It now looks like trade talks will begin in December, and this removes much of the uncertainty that had been keeping the Pound subdued. As a result, the Pound rose against the Euro, recovering much of the losses we had seen due to the weak economic data outlined in my last post.
However, the gains have been limited due to political uncertainty here in the UK. There were news reports over the weekend that outlined divisions in the Conservative party which threaten the limited progress made in Brexit talks so far. Encouraging signs of a little progress for Brexit talks then, that have helped the Pound rise a little, but not much.
Will Pound/Euro rates go up or down this week?
This week there are a number of things that will be key to where the Pound moves next against the Euro and other currencies. Firstly, we have the latest GDP numbers from the UK on Wednesday. These are expected to show growth of 0.3% and if the actual number is this or higher, it’s quite likely that the BoE will raise interest rates in November so this could lend some further support to Sterling. If the number is less than 0.3% however, it’s likely the Pound will fall as the chance of a rate hike is pushed back to December.
Also of note is the European Central Bank meeting on Thursday. I expect no change to monetary policy, however if the ECB president Mario Draghi drops further hints at ending the ECB’s long running stimulus programme, it could lend further strength the the Euro which would strengthen the single currency and make it more expensive to purchase.
So while GBP/EUR rates have recovered a little and look significantly better than it did last month, significant downside risks remain that could cause exchange rates to slip away again.
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