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Euro Rates Today: EUR/GBP Hits 23-Month High, on ‘No Deal’

Market CommentaryEuro Rates Today: EUR/GBP Hits 23-Month High, on ‘No Deal’
Euro Rates Today: EUR/GBP Hits 23-Month High, on ‘No Deal’
Euro to The Pound Today.

The euro to pound interbank exchange rate has reached a new 23-month high in the past day, its strongest since August 30th 2017, of 0.9256.

By comparison, the euro was as weak as 0.8505 versus the pound on May 6th this year. So the common currency has since rise by over +7.5 cents, or by +8.83%.

In addition, the euro stands now just -0.06% below the high reached on August 30th 2017, of 0.9262. After that, the euro to pound’s next strongest level is 0.9352, reached on October 13th 2009, almost a decade ago.

The common currency has risen versus sterling for close to 14 consecutive weeks. This is the euro to pound interbank exchange rate’s longest winning streak since the euro was founded, in 1999.

The euro’s all-time high against the pound is 0.9714, reached in December 2008. So at the time of writing, the common currency stands just -4.71% below this historical high point.

This could benefit you, if you’re a Briton selling property abroad in Spain or France, to transfer the funds to the UK, or a Eurozone business owner importing UK goods or services.

This is because, when you exchange euros to pounds, you could now get a higher British sterling total in your UK bank account, compared to any time in the last 23 months.

In turn, this may make it more profitable for you to transfer the money from your French or Spanish property sale to the UK, or cut your currency for your business costs to ship UK products.

To stay up-to-date with the euro to pound interbank exchange rate, simply visit Pure FX’s Rates & Tools page. Here, select ‘EUR’ to ‘GBP’ to see the interbank rates for the last seven days.

Also, to check what’s affecting the value of the euro versus the pound recently, visit our EUR to GBP Exchange Rate Updates page. Here, click on the newest article to see the latest news.

A first reason why the euro has reached this new 23-month high versus the pound is because the financial markets are continuing to lift the probability that there’ll be a ‘No Deal’ Brexit.

However, looking forward, the euro’s value against sterling might be affected, first by the fact that Germany’s exports fell at the fastest pace in three years in June, said official data yesterday.

In addition, looking ahead, the euro to pound interbank exchange rate could be influenced by the fact that Italy’s unstable, populist government looks closer to collapse, say new reports.

Please find below a further explanation of why the Eurozone’s common currency has hit this 23-month high versus sterling. You may find this useful, for when you transfer money to the UK.

Euro Rates Today Reach 23-Month High, as Odds of ‘No Deal’ Brexit Rise Further

As I mention, a first reason why the euro to pound interbank exchange rate has reached this 23-month high of 0.9256 in the past day is because the financial markets continue to raise the probability that the UK will exit the EU without a deal.

This has weakened the pound, because it’s feared that a ‘No Deal’ Brexit will weaken the UK’s economic growth, and future prosperity.

The financial markets think that a ‘No Deal’ Brexit now looks likelier, because according to a new Reuters poll of economists, published yesterday, there’s now a 35% chance of a ‘No Deal’.

This compares to Reuters’ last poll of economists, back in July, when those surveyed thought that there was a 30% risk of no Brexit agreement. So that’s a +5% increase in just a month.

Meanwhile, other pollsters now put the probability that the UK will leave the EU without an agreement at 38%. This compares to odds of a ‘No Deal’ of just 10% back in February.

This was before ex-Prime Minister Theresa May’s draft Withdrawal Agreement was repeatedly voted down in the House of Commons, and before Boris Johnson entered Number 10 Downing Street.

Investors believe that a ‘No Deal’ is likelier than a few months ago, because Mr. Johnson’s government is putting all its energy into preparing for Brexit by the end of the extended deadline of October 31st, come what may.

For example, Mr. Johnson has repeatedly said that the UK will leave the EU by Halloween “no ifs, no buts”, and has increased funding and preparations for a ‘No Deal’.

In addition, the new Prime Minister has refused to meet the EU’s leaders, unless they’ll renegotiate the draft Withdrawal Agreement, and remove the Northern Irish backstop.

Mr. Johnson argues that the backstop risks keeping the UK in the EU’s Customs Union, even after Brexit, to ensure there’s no border between Northern Ireland and Ireland. This would leave the UK “a vassal state”. So this has contributed to devalue the pound.

Euro to Pound Exchange Rate Rises, as UK and EU at Brexit Stalemate

However, the EU has so far refused to renegotiate the draft Brexit deal, or abandon the backstop. This is because, first, Brussels spent three years negotiating the current deal with ex-PM Theresa May, and they believe that it’s the best deal possible.

Second, the EU supports the backstop, to ensure that there’s no hard border on the island of Ireland, to prevent a return to sectarian violence there, and so protect peace. This is in line with the terms of 1998’s Good Friday Agrement.

So the UK and the EU are currently at stalemate. The thing is though, the clock is ticking down to the October 31st deadline, and the UK’s default legal position is that we’ll exit on Halloween, with or without a deal.

Given this, the rising probability is that, if neither Mr. Johnson nor the EU’s leaders alter their stance in the next three months, there’ll be a ‘No Deal’ Brexit by default.

The financial markets are also increasingly concerned about the possibility of a ‘No Deal’ Brexit, because it looks like Mr. Johnson is preparing to achieve Brexit by Halloween, even against the will of MPs.

For example, this week the PM’s Special Advisor, Dominic Cummings, told civil servants that they face the sack, if they’re not working flat-out for Brexit by October 31st, reports The Guardian newspaper.

Also, Mr. Cummings has argued that, even if MPs vote down Mr. Johnson’s government in a vote of ‘No Confidence’, in which case we’d ordinarily expect Mr. Johnson to resign, he could stay on.

This is because the legislation about votes of ‘No Confidence’ doesn’t technically say that the Prime Minister has to resign when he loses, even though this is a centuries-old convention.

So investors are increasing the probability that there’ll be a ‘No Deal’ Brexit, both because the UK and EU are deadlocked with the clock ticking down, and because Mr. Johnson’s government seemingly intends to push through Brexit by October 31st, come what may.

It’s likely that Mr. Johnson wants to achieve Brexit, to increase the Conservatives’ popularity before the next elections. However, this possibility has weakened the value of sterling.

Euro to the Pound Might Be Affected, if Boris Is Bluffing Over ‘No Deal’

That said, even though the odds of a ‘No Deal’ Brexit have risen almost four-fold since February, the financial markets still place a roughly 60% chance that the UK and EU will reach a deal in the next three months.

This is to say, investors remain optimistic that there’ll be an organised, structured Brexit, in which the UK and EU’s cooperation regarding, for example, flights and airports, remains intact.

In part, this is because many investors think that Mr. Johnson is playing “hard ball” with the EU over Brexit, reports The Spectator political magazine.

In other words, they think that the UK wants to give every appearance of being prepared to leave without a deal, to put pressure on the EU, and extract better exit terms, before October 31st. If this is the case, then Mr. Johnson’s government’s ‘No Deal’ planning amounts to bluffing.

For example, Thu Lan Nguyen at Commerzbank says that: "We still think it is more likely that Johnson is simply bluffing and is not going to take the risk of leaving the EU without an agreement.”

“However, it cannot be ruled out that he will play poker until shortly before the deadline of 31 October in order to exert maximum pressure on the EU."

Meanwhile, Richard Harris, CEO of Port Shelter, says that: "Regardless of whether Johnson will go through with a no-deal, the threat of it is likely to remain ‘on the table’ for the remainder of the period until the deadline on October 31 for no other reason than as a negotiating tactic."

Of course, we can’t know for sure if Mr. Johnson is bluffing or not. So the uncertainty has weakened the pound.

Common Currency May Be Influenced Versus Sterling, as German Exports Decline

In addition, looking forward, the euro to pound interbank exchange rate could also be influenced by the fact that Germany’s economy, the Eurozone’s largest, continues to slow.

This could affect the value of the euro, by weighing on the Eurozone’s GDP (Gross Domestic Product) growth in 2019, and encouraging the European Central Bank to cut interest rates, perhaps in September.

To start with, Germany’s exports fell by -8.0% in June compared to a year ago, said Germany’s official statistics agency, Statistiches Bundesamt Deutschland, this morning, reports financial news source Bloomberg.

This was Germany’s sharpest fall in exports in three years, since June 2016. Meanwhile, Germany’s imports also fell in June, by -4.4% compared to 12 months ago, according to Germany’s government office today.

It’s thought that Germany’s exports declined in June, in part because of the USA’s and China’s trade war.

To explain, since last year, the world’s two largest economies have been imposing increasingly large tariffs on each other, to try and force each other to back down over trade terms. In particular, the USA wants China to respect its intellectual property, and buy more US farm goods.

However, as I mention, the USA and China are the world’s two largest economies. So their trade dispute affects third-party countries around the world, from Germany’s manufacturing sector to New Zealand’s commodity prices.

Germany especially is vulnerable to the trade war, because exports make up 44% of Germany’s economy, and the USA and China are two important customers for German industry.

So although the USA’s and China’s tariffs are intended to pressure each other, so far, Germany is arguably the biggest loser. In addition, Washington’s and Beijing’s trade’s dispute is weakening the wider Eurozone’s economy too.

For instance, according to Statistiches Bundesamt Deutschland today, Germany’s exports to the rest of the bloc fell by -5.6% in June year-on-year, to just €40.6 billion.

Meanwhile, other evidence that the trade war is weighing on Germany’s economy includes the fact, for example, Germany’s industrial production fell by -5.2% in June year-on-year, said official statistics this Wednesday.

This was well below economists’ forecasts for a -1.8% fall, plus May’s decline of just -3.7%, and the sharpest decline in Germany’s factory output in close to a decade. So this might affect the value of the euro, looking ahead.

EUR to GBP Rate Could Be Impacted, as Italy’s Populist Government Near Collapse

Also, a further factor that might impact the value of the euro versus the pound in future is the fact that Italy’s populist government looks close to collapse, say new reports.

This may affect the euro to pound interbank exchange rate, because Italy is the Eurozone’s third-largest economy, with among the largest public debt piles in the world. So an Italian crisis may influence the euro.

Italy’s populist government looks close to collapse, ostensibly because the two governing parties, the far-left Five Star Movement and the far-right League, have disagreed over a proposed train line from Italy to France, reports The Washington Post newspaper.

In a vote in Parliament this week, the Five Star Movement voted against the proposed high-speed link between Turin and Lyon, while the League voted for it.

Following the disagreement, Italy’s Interior Minister, and League leader Matteo Salvini, said in a statement yesterday that it’s become increasingly difficult to work with the Five Star Movement, since the coalition government was formed 14 months ago.

Mr. Salvini called on Italy’s Prime Minister, Giuseppe Conte, to hold a vote of ‘No Confidence’ in preparation for new elections. To be specific, Mr. Salvini said on Thursday that:

“I repeated it today to [Prime Minister] Conte: we should immediately go to Parliament to acknowledge that there is no longer a working majority as is shown by the vote on the TAV [the high-speed train line to France] and the repeated insults to me and the League from our ‘allies’ and let’s quickly give the voters their say.”

However, although Mr. Salvini has broken with the Five Star Movement over the train line to France this week, it’s possible that the leader of the League wants to hasten fresh elections in Italy.

This is because, since the Five Star Movement and League formed their coalition, Mr. Salvini’s poll ratings have gone from strength-to-strength. So he may now wish to try and govern alone, or with another right-wing party.

However, following Mr. Salvini’s statement, Italy’s Prime Minister, Mr. Conte, didn’t immediately resign his post or dissolve Parliament. Instead, Mr. Conte has asked Mr. Salvini to:

“Justify to the voters who believed in the promise of change, the reasons that have led him to interrupt early and abruptly the work of government.” This suggests that Mr. Conte’s response is more moderate.

As a result, Italy’s populist coalition could continue, if Mr. Conte can convince Mr. Salvini to back down from his desire for fresh elections. However, as I mention, Italy’s public debt currently stands at among the highest in the developed world, at 131.2% of GDP.

So Italy’s political situation is fragile, and might quickly descend into a crisis that affects the wider Eurozone. This might impact the euro in future too.

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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 peter.lavelle@purefx.co.uk.

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