Pound/Euro rates remain supported above €1.14. To some, this is a surprise given the recent run of disappointing UK data. In the last week we have seen: GDP figures lower than expected, growth forecasts downgraded, and dire warnings from the BoE and economists about Brexit, Yet, Sterling remains appealing to investors, with the GBP/EUR rate remaining at €1.14. This is only a few cents below the best we’ve seen in 18 months.
Why hasn’t the Pound fallen?
You would usually expect a raft of negative data like this to push the value of a currency down, so what’s going on? It’s probably because despite all the doom and gloom in the press about Brexit, the markets are largely ignoring it, firm in the belief a deal will be done. The simple fact is nobody thinks a ‘No Deal’ brexit will happen, and that’s why the Pound hasn’t fallen.
Economic data has been disappointing, but that’s a global issue. Last week the EU downgraded it’s growth forecasts. Italy is in recession and Germany might soon join it. This year the UK is still forecast to have more growth than Germany, however the numbers are low. It’s partly this poor EU economic data that is also supporting GBP/EUR rates, as the Euro weakens and becomes chaper to buy.
Will a Brexit deal be agreed?
Parliament have already given clear signals that if changes are made to the ‘Backstop’ then they will pass the withdrawal agreement. The ball therefore, is in the EU’s court. If they make the changes needed, then the deal will pass and we can move on to trade negotiations.
They are adamant that they will not re-negotiate, but to me this is not logical. They are refusing to amend the backstop, risking the UK leaving with no deal, which would result in a hard border with Ireland, which is the very think the backstop is designed to avoid! It doesn’t make sense. My view is that a deal will be agreed, but it could be the case that the leaving date will need to be pushed back to give time for a deal to be done. At the moment the UK and EU are seeing who will blink first.
What could be the affect exchange rates?
A deal being agreed would push the Pound higher. A delay would simply keep the status quo, but could cause a slight rise as the chances of a No Deal diminish. There is still the possibility, while unlikely, of the UK crashing out with no deal. In this scenario the uncertainty would cause the Pound to fall significantly. (Get in touch for a detailed analysis from one of our expert brokers about the currency pair you need.)
What else is affecting exchange rates?
In the absence of any Brexit developments, focus will be on economic data. Tomorrow we have the latest UK inflation numbers, and on Friday we’ll see the most recent Retail Sales figures. If the numbers are better or worse than forecast, the Pound will move accordingly.
The EU releases growth numbers on Thursday, expected to show quarterly growth of 0.2%. A higher number will push GBP/EUR down, while a lower number would push the rate up.
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