Lack of Brexit Talks Progress Weighs on Pound Euro (GBP/EUR) Exchange Rate
Growing anxiety over the lack of progress in UK-EU trade talks helped to keep the Pound to Euro (GBP/EUR) exchange rate under pressure.
As the two sides showed no fresh signs of moving towards an agreement on outstanding issues, such as fishing rights, the mood towards Pound Sterling (GBP) soured.
With Thursday’s deadline for a draft Brexit deal drawing rapidly closer investors saw little reason to favour the Pound over its rivals.
As the UK economy has already come under pressure as a result of the latest Covid-19 restrictions the prospect of further Brexit-based uncertainty weighed heavily on GBP exchange rates.
The rising risk of the talks failing to yield an agreement, resulting in a no-deal scenario, put the Pound under renewed pressure against its rivals.
Increasingly Downbeat ECB Outlook Puts Pressure on Euro (EUR)
Even so, the downside potential of the GBP/EUR exchange rate was ultimately limited thanks to a general resurgence in market risk appetite.
News of the high level of effectiveness shown by Moderna’s Covid-19 vaccine in its phase 3 trials encouraged a fresh surge in market confidence.
Fresh commentary from European Central Bank (ECB) policymakers also put a dampener on the Euro (EUR), limiting its ability to push higher against the weakened Pound.
As the ECB looks set to maintain a downbeat outlook for the foreseeable future there appeared little incentive to favour the single currency at the start of the week.
If ECB policymakers continue to signal impending December policy action this may keep EUR exchange rates from finding any particular traction in the days ahead.
Any fresh indications that Eurozone nations are likely to remain in a tighter state of lockdown for longer could also see the Euro falling out of favour with investors.
Rising UK Inflation Rate Looks to Offer GBP/EUR Exchange Rate Boost
While Brexit developments could easily dominate the outlook of the GBP/EUR exchange rate Wednesday’s UK consumer price index may offer the Pound some support.
Forecasts point towards the headline inflation rate picking up from 0.5% to 0.6% on the year in October, signalling an improvement in domestic inflationary pressure.
Evidence that inflation began to recover at the start of the fourth quarter could offer the Pound a solid boost against its rivals in the short term.
Higher levels of inflation would give the Bank of England (BoE) less incentive to take fresh policy action in the near future, diminishing the odds of a potential move to negative interest rates.
Even so, the shadow over the Brexit draft deal deadline could well keep the GBP/EUR exchange rate from making any significant gains this week.
Unless the issue of Brexit appears on course for a resolution this may continue to limit the upside potential of the Pound for some time yet to come.
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