Pound Sterling to Euro Exchange Rate Rebounds Could be Limited as Outlook Filled with Uncertainty

Pound to Euro Exchange Rate Climbs despite Brexit Uncertainties

The Pound Sterling to Euro (GBP/EUR) exchange rate is recovering from weekly lows this morning. This is despite persisting Brexit and coronavirus uncertainties clouding over the Pound (GBP) outlook.

Since opening this week at the level of 1.1040, GBP/EUR has been trending with a downside bias. Yesterday, GBP/EUR touched on a low of 1.0924 – the worst level for the pair in a fortnight.

GBP/EUR is rebounding today and currently trends near the level of 1.1000 again. This is despite a lack of solid fresh support for the Pound.

It comes as investors are more willing to take risks again after the past week’s US political chaos. The Euro (EUR) had been benefitting slightly from safe haven demand.

Looking ahead, political developments will remain the focus for Pound and Euro investors.

Pound (GBP) Exchange Rates Up on Brexit Hopes despite Uncertainties

Despite mixed developments in UK-EU Brexit negotiations this week, hopes for a deal to be reached are once again supporting the Pound today.

Reports that the UK government could drop out of negotiations as soon as next week have been brushed over today, as there are more contrasting reports that relations are actually improving.

According to Lee Hardman, Currency Analyst at MUFG, Brexit fears are softening while coronavirus fears rise:

‘The improving mood music surrounding the Brexit talks is encouraging a stronger Pound,

The more severe the lockdown becomes the more likely positive Brexit developments will be overshadowed,’

Euro (EUR) Exchange Rates Slide as Risk-Sentiment Rises

For much of the week, the Euro has been benefitting from safe haven demand. This is due to weakness in its safe haven rival, the US Dollar (USD), as the US economic and political outlook remains filled with uncertainties.

As a result of this though, the Euro is giving back some of its gains today as markets become more willing to take risks again.

US President Donald Trump said that US Congress should try to pass a smaller fiscal policy package ahead of the upcoming US Presidential Election. This bolstered hopes for US fiscal stimulus and the US economy.

On top of higher risk-sentiment, the Euro is also being weighed by dovishness from European Central Bank (ECB) officials.

Officials have indicated that more easing is likely. ECB Vice President Luis de Guindos also said that Euro exchange rates indirectly impacted the bank’s reaction function.

Pound to Euro (GBP/EUR) Exchange Rate Awaits UK Data and Global Political News

Amid a lack of solid optimistic Brexit developments, the Pound’s potential for gains will likely remain limited for now. The Pound to Euro exchange rate’s movement could remain volatile as markets await more news.

Unless there are solid Brexit developments, speculation is likely to keep driving the Pound. Tomorrow’s key UK ecostats could also cause some movement however.

Tomorrow’s European session will see the publication of Britain’s August trade, production and growth results.

If UK growth was better than expected in August, investors may become more confident about Britain’s economic resilience amid the coronavirus pandemic.

Tomorrow will also see the publication of French industrial production stats. However, the Euro is more likely to be influenced by global sentiment, as well as strength in its rival currencies.

If US political uncertainty rises again but the US Dollar (USD) remains weak, then Pound to Euro (GBP/EUR) exchange rate could fall as the Euro strengthens again.