A lack of fresh support in Eurozone data has done little to stop the Euro from being one of the market’s most appealing major currencies today, as the Euro to British Pound (EUR/GBP) exchange rate soared over 1.0% in reaction to the latest shock in the Brexit process. UK Prime Minister Boris Johnson has indicated that he is unwilling to extend the post-Brexit transition period, even if it means facing a hard Brexit.
Britain’s 2019 General Election dominated market movement last week. While EUR/GBP opened the week at the level of 0.8418 and briefly touched on a high of 0.8496, the election results on Thursday ultimately sent the pair plummeting.
EUR/GBP briefly touched a three year worst of 0.8280 on Thursday evening, before recovering slightly and closing the week nearer the level of 0.8338.
Then, this week, a combination of resilient demand for the Euro and a plunging Pound today have left EUR/GBP surging. At the time of writing, EUR/GBP had already recovered all of last week’s losses and trended closer to the level of 0.8482.
EUR Exchange Rates Benefit from Broad Weakness in Rival Currencies
The Euro has been one of the most appealing major currencies in recent sessions, despite a lack of considerably strong Eurozone ecostats.
While today’s Eurozone trade balance showed the surplus climbing higher than expected and softening Eurozone trade concerns, German and Eurozone manufacturing data published yesterday disappointed investors.
The data indicated that the Eurozone economy may not be recovering that smoothly after all.
However, despite a lack of particularly strong domestic support for the Euro, the shared currency has been surging against the Pound and holding its ground against the US Dollar (USD).
The Euro’s gains have been largely due to weakness in these currencies. The Pound plunges on Brexit fears while the US Dollar, the Euro’s biggest currency rival, is weak on US economic jitters and Federal Reserve speculation.
The Federal Reserve took a less hawkish than expected tone on US monetary policy last week, due partially to rising signs of weakness in US ecostats.
GBP Exchange Rates Plummet as Boris Johnson Signals Hard Brexit Still Possible
Much of the Pound’s strength last week came amid expectations that at UK Conservative Party majority government would make a relatively soft Brexit outcome more likely.
This, as well as a softening of political uncertainty over Parliament deadlock, was part of the Pound’s strong performance last week.
However, investors remained anxious about how the next phase of Brexit negotiations would go. This was part of the Pound’s mixed movement yesterday.
Then today, it was reported that UK Prime Minister Boris Johnson was planning to outlaw the potential extending of the transition period beyond the end of 2020.
The news came as a shock to markets, which had been hoping that the government position on Brexit could soften due to the large majority. The Pound plummeted as the news caused fresh concerns that Brexit negotiations could end with a cliff-edge scenario.
According to Fawad Razaqzada, Market Analyst at Forex.com, the latest Brexit jitters combined with some disappointing UK wage stats sent the Pound plummeting:
‘First and foremost, it was reports that the UK government will block the EU transition extension beyond 2020, raising concerns that this could potentially result in a hard Brexit. Then, the latest wages data came in below expectations while unemployment claims grew more than anticipated.’
EUR/GBP Exchange Rate Forecast: Brexit Uncertainty Comes Back into Focus
The Pound’s ‘Boris Bounce’ appears to have come to an end, and markets are anxious ahead of another year of expected Brexit uncertainty.
Analysts are warning that further uncertainty and Pound weakness is ahead, and any notable developments in Brexit over the coming days could further influence the outlook.
The UK government is expected to try and pass its Brexit plan through Parliament over the coming week. If the government takes a delay to the transition process off the table, the Pound will likely see deeper losses.
This is likely to dominate Euro to Pound exchange rate movement in the coming days, but Eurozone data and European Central Bank (ECB) speculation could be influential as well.
German confidence data and Eurozone inflation data, as well as a speech from ECB President Christine Lagarde, will come in tomorrow and could influence the Euro to Pound exchange rate.
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