The euro to pound interbank exchange rate has hit 0.8911 today. This is its highest in 21 weeks, or since January 15th.
By contrast, back on March 12th, the euro was as weak as 0.85 versus sterling. So it's since risen by over 4 cents, or by +4.83%.
To put this into context, €250,000 at today's interbank exchange rate of 0.8911 would be worth £222,775.
By comparison, at the interbank exchange rate on March 12th of 0.85, €250,000 would have been worth just £212,500.
So as the interbank exchange rate has risen, for the same euro amount, that's an increase in the pound total of +£10,275.
This is because, when you transfer money to the UK, you might now get a higher pound total. This is compared to if you'd transferred money in the recent past.
In turn, this could make it more profitable for you to sell your holiday home in Spain or France. For your business, it may also cut your UK import costs.
A first reason why the euro has hit this 21-week high is because Prime Ministerial candidate Boris Johnson has threatened to withhold the UK's €39bn payment to exit the EU.
A second factor why the euro rates today have risen is because it's forecast that UK economic growth shrank in April, as well as manufacturing and industrial output.
Let's look more closely at these factors why the euro to pound interbank exchange rate has gained in value. You might use this information, to decide when to transfer money to the UK.
EUR to GBP Rate Gains, on Boris Brexit Bill Threat
As I mention, a first partial explanation why the euro has risen versus sterling is because the candidate to be Prime Minister, Boris Johnson, has threatened to withhold the UK's €39 billion Brexit bill payment.
In turn, this might escalate tensions between the UK and the European Union, both before and after Great Britain exits.
Mr. Johnson, an ex-Mayor of London and a former Foreign Secretary, made his comments in yesterday's Sunday Times newspaper.
He said: “I always thought it was extraordinary that we should agree to write that entire cheque before having a final deal. In getting a good deal, money is a great solvent and a great lubricant."
Mr. Johnson has made these remarks, probably to gain the support of more Conservative MPs and party members, in the Conservatives' ongoing leadership contest.
Many Conservative party members favour a 'hard' Brexit, in which the UK would exit the EU with as few ties to Europe as possible. So Mr. Johnson's threat to not pay the Brexit bill may please these members.
However, though Mr. Johnson's comments may win him favour among Conservative party members, his remarks may also raise tensions with the EU.
This is because, first, the UK has already agreed to pay the Brexit bill, as part of Prime Minister Theresa May's three-year negotiations with Brussels. So Mr. Johnson's threat means the UK going back on our word.
In addition, if the UK doesn't pay its Brexit bill, the EU is less likely to reach a close trade deal with Great Britain in future. This may mean more bureaucracy for us to sell our goods to Europe, or higher tariffs.
As a result, this could slow the UK's future economic growth, compared to if we pay the Brexit bill. So Mr. Johnson's comments have weakened the value of the pound today.
Euro Strengthens Versus Pound, as UK GDP Forecast to Fall
Also, another reason why the euro to British pounds interbank exchange rate has hit this 21-week high is because it's forecast that the UK's GDP (Gross Domestic Product) fell in April.
According to financial market forecasts, the UK's economy shrank by -0.1% in the first month of Q2. This is ahead of the Office for National Statistics (ONS) release of this data later today.
It's thought that the UK economy shrank in April, in part because British manufacturers cut their output, following huge stockpiling efforts earlier in 2019. These stockpiling efforts were to protect against supply shocks, in case there's a 'No Deal' Brexit.
In particular, it's predicted that UK manufacturing output fell by -1.0% in April, and wider industrial production by -0.7%.
In addition, another factor why UK GDP could have contracted in April is because the UK's vast services sector barely expanded that month.
According to IHS Markit's PMI (Purchasing Managers' Index) for Britain's service sector, activity hit just 50.4 in April. This is barely above the 50.0 that signals economic growth. This slowdown also reflects Brexit uncertainty among firms.
British sterling could weaken if the UK economy shrinks in April, first because this would reflect the continuing impact of Brexit uncertainty.
At the moment, UK companies don't know what future export terms we'll have the EU, our biggest trading partner. In turn, this discourages firms from investing in new equipment or hiring staff, until there's greater clarity.
What's more, the UK pound might also fall if UK GDP contracts in April, because this would put less pressure on the Bank of England (BoE) to lift interest rates, above their current 0.75%.
This is because, when economic growth slows, the central bank keeps borrowing costs lower, to make loans cheaper. However, this also makes investing in UK assets less profitable, which weakens British sterling.
Euro May Be Influenced by Mixed German Factory Data
Meanwhile, looking forward, the euro to pound interbank exchange rate could be affected by Germany’s mixed manufacturing performance recently.
In particular, Germany's most recent factory orders and industrial production reports are sending different signals about the outlook for the Eurozone's largest economy.
Germany's factory orders grew by 0.3% in April, according to the Deutsche Bundesbank last Thursday 6th June. However, Germany's industrial output shrank by -1.9% in April, said Statistisches Bundesamt Deutschland on Friday 7th June.
So it's hard to tell if Germany's vast manufacturing sector expanded in the first month of this quarter.
Germany's manufacturing sector matters, because it's the most important sector of Germany's economy. In turn, Germany is the Eurozone's chief economic engine.
In recent months, German industry has been buffeted by US President Donald Trump's threats that the USA might impose tariffs on European vehicle exports to America.
These latest reports from Germany's manufacturing sector suggests that factories in Deutchsland have yet to fully recover from Mr. Trump's threats.
As a result, this might slow down Germany's economic growth in Q2, between April and June 2019. This would make investing in Eurozone assets less attractive for international money managers. This might affect the euro.
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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email email@example.com.