GBP/EUR Exchange Rate Subdued as Brexit Talks Resume
The Pound Euro (GBP/EUR) exchange rate is back on the defensive this morning as investors remain nervous as the latest round of Brexit trade talks get underway.
At the time of writing the GBP/EUR exchange rate is trading at €1.1097 this morning, having fallen roughly 0.3% from this morning’s open rate.
Have the Risks of a No-Deal Brexit Been Priced into the Pound (GBP)?
While the Pound (GBP) faced some pressure in the first day of trade this week in response to fresh Brexit jitters, GBP exchange rates remain broadly elevated compared with its previous lows.
However in light of fresh tensions between the UK and EU and the rising risk of a no-deal Brexit, analysts are starting to warn that GBP exchange rates are becoming decoupled from reality.
The GBP/EUR exchange rate struck as low as €1.06 last summer, when it looked all but certain the UK would crash out of the EU.
Francesco Pesole, FX Strategist at ING Bank, warns:
‘GBP positioning is a good indication of how investors are currently keeping a highly complacent approach to the Brexit story.
‘Sterling’s positioning is still far from the levels it hovered around when markets were pricing in a no-deal Brexit.’
This confidence in Sterling is likely underpinned by hopes that Boris Johnson will manage to pull a deal out of a hat at the last minute, much like he did last year.
Analysts at MUFG suggest:
‘Recent price action still suggests that market participants remain confident though that a compromise Brexit deal will be reached at the last minute.
‘The underlying belief being that neither the UK nor European governments would want to deliver another negative economic shock on top of the unprecedented COVID hit.’
However this looks to be a little optimistic, given the current state of talks.
Euro (EUR) Strength Creates a Headache for the ECB
The Euro (EUR), meanwhile, finds its gains tempered ahead of the European Central Bank’s (ECB) upcoming policy decision on Thursday.
While no policy changes are expected from the ECB this month, analysts suggest President Christine Lagarde could take the opportunity to take down the Euro.
The single currency has surged in recent months, buoyed by Europe’s surprisingly strong start to its post-coronavirus economic recovery.
However this recovery is already showing signs of stalling and it looks like the strength of the Euro may be partly to blame, stoking expectations the ECB will want to act soon to try an curtail further upside in EUR exchange rates.
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