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Euro Rates Today Near 2-Week High, Ahead of Bank of England

Market CommentaryEuro Rates Today Near 2-Week High, Ahead of Bank of England
Euro Rates Today Near 2-Week High, Ahead of Bank of England
Euro to The Pound Today.

The euro to the pound interbank exchange rate stands at 0.8510 today at the time of writing. This is just 0.03% below the Eurozone’s common currency’s recent two-week high against sterling, its strongest since 4th December, reached yesterday, at 0.8513.

By comparison, back on 13th December, the euro was as weak as 0.8280 versus the pound. So it’s since increased in value by over 2.25 cents, or by 2.77%.

This could benefit you, if you’re a Brit selling property abroad on the Costa Blanca or in Cannes, to repatriate the funds to the UK, or if you’re making regular payments to Great Britain.

This is because, when you transfer money to the UK from Spain, France, or all the Eurozone, you may get a higher pound total, compared to if you’d bought sterling over the last fortnight.

To stay updated with the euro to the pound interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, select ‘EUR’ (Euro) to ‘GBP’ (Great British Pound), to see this week’s rates.

Also, to check what’s affecting the value of the Eurozone’s common currency versus sterling, go to our EUR to GBP Exchange Rate Updates page. Here, click on the newest article.

One reason why the euro rates today stand near this two-week high on the interbank market is because it’s thought that the Bank of England may hint that it could cut UK interest rates today.

Another factor why the EUR to GBP interbank exchange rate has risen is because UK Prime Minister Boris Johnson will legislate to prohibit the UK’s Brexit transition being extended beyond 2020.

Moreover, looking to the rest of this week, the euro to the pound interbank exchange rate could be affected, by economic data including the UK’s revised growth figures for Q3, due tomorrow.

EUR to GBP Rate Near 2-Week High, as BoE May Hint at Cut Today

As I mention, one reason why the euro to the pound interbank exchange rate stands near its two-week high at 0.8510 today is because the Bank of England (BoE) announces its last UK interest rate decision of 2019 today, at 12.00 GMT.

It’s thought that the UK central bank will keep UK borrowing costs steady at 0.75%, but could hint that it will cut UK interest rates early next year.

The Old Lady of Threadneedle Street, as the BoE is also affectionately called, may suggest that it might cut UK interest rates in 2020, first because Britain’s inflation remains below target.

On Wednesday, we learnt that UK price pressures held at 1.5% in November, said the Office for National Statistics (ONS), above forecasts for 1.4%, yet below the BoE’s official target of 2.0%.

Frequently, low price pressures are a signal of weak economic momentum in a country. With this in mind, to try and stimulate a country’s economy, and so lift inflation higher, a central bank typically cuts interest rates.

This reduces the cost of borrowing a loan in a country, thereby encouraging businesses to invest and consumers to shop or take out a mortgage, boosting growth.

Moreover, a second reason why the BoE may hint that it could cut UK interest rates today is because the UK’s Brexit uncertainty now looks set to continue in 2020.

Earlier this week, UK Prime Minister (PM) Boris Johnson announced that he’ll “legally prohibit” the UK’s future trade talks with the EU and Brexit transition continuing beyond the current deadline, of December 31st 2020.

Seemingly, PM Johnson’s intention is to show that he’s serious about “getting Brexit done”.

However, for British businesses and investors, this risks creating a new Brexit “cliff edge”, in which the UK either negotiates its trade deal in under 12 months, or defaults to trading with Europe on World Trade Organisation (WTO) terms, with more tariffs and bureaucracy. This clouds the outlook.

As a result, the BoE may suggest that it could reduce UK borrowing costs in the foreseeable future, to support the economy.

After all, if British businesses see that it’s cheaper to take out a loan, they may feel encouraged to hire new employees or invest, in spite of 2020’s ongoing Brexit deadline. In turn, this could accelerate the UK’s GDP (Gross Domestic Product) growth next year.

For example, Robert Wood, economist at BofA Global Research, says that “We expect the BoE vote to stay at 7-2 as they wait to see incoming data. But the weak data flow suggests a risk of a third voter for a cut (perhaps Gertjan Vlieghe)."

Meanwhile, Shaun Osborne at Scotiabank says that “pricing is pointing to around a 60% chance of a Bank rate cut by mid-year (Jun).”

At the BoE’s last meeting in November, two members of the central bank’s nine-person Monetary Policy Committee (MPC) surprisingly voted to cut UK interest rates.

So we’ll see if, what with the knowledge of the UK’s below-target inflation, and the prospect of further Brexit uncertainty next year, more MPC members opt to ease borrowing costs today. This could affect sterling’s value.

Euro Rates Today Near 2-Week High, as Boris to Prohibit Brexit Extension

Furthermore, another reason why the euro to the pound interbank exchange rate stands near this two-week high today is because PM Johnson will introduce legislation to “legally prohibit” the UK’s future EU trade deal negotiations extending beyond the end of 2020 tomorrow.

For markets, this undoes many of the advantages of the PM’s election win last week, weakening the GBP.

To be specific, PM Johnson will introduce the Brexit “Withdrawal Agreement Bill” (WAB) for its first reading in Parliament on Friday. This will include the amendment to limit the Brexit transition period to under 12 months.

Following the Conservatives’ electoral victory last week, the PM enjoys an 80-seat majority in the House of Commons, so it’s thought that the WAB will smoothly pass.

However, for the world’s money managers, PM Johnson’s decision risks creating another Brexit “cliff edge” next year, when investors would prefer stability and predictability in the UK’s outlook.

After all, for markets, the advantage of the Tories’ election win last week is that it enables the PM to govern, without having to depend on smaller groups of MPs or incorporate the opposition’s amendments.

In turn, the world’s investors had hoped that, with a large majority, PM Johnson might soften his Brexit approach. This is because the PM doesn’t have to depend on groups like the European Research Group (ERG) or Northern Ireland’s Democratic Unionist Party (DUP) to govern.

With a majority of 80 MPs, the PM can theoretically take the approach to Brexit that suits him.

However, in the event, the PM seemingly wishes to show that he’s serious about “getting Brexit done” to Britons who voted for the Conservatives last week.

PM Johnson’s decision creates new volatility for the UK’s political outlook in the next 12 months, in which the UK has just a short time frame to agree its future EU trade deal. Normally, such deals take several years to negotiate.

Jane Foley, FX strategist at Rabobank, says that “This backdrop is hardly a constructive one for the pound. If another dose of Brexit fears are layered on top, GBP could be looking at another bout of selling pressures."

We’ll see in the coming days and weeks what further decisions PM Johnson makes about his Brexit strategy, and what affect this may have on the EUR to GBP interbank rate.

Euro to The Pound May Be Influenced, by UK Q3 GDP Figures Tomorrow

Turning to tomorrow, the euro to the pound interbank exchange rate could be affected, by the UK’s updated GDP figures for Q3, from July to September.

These are forecast to show that Britain’s economy expanded by 0.3% over the Summer, as previously thought, pointing to solid if unspectacular growth. The data is released by the Office for National Statistics, and is due at 09.30 GMT.

However, even if the UK expands by 0.3% in Q3, for all of 2019 to date, Britain’s GDP has only grown by 0.8%. This means that, to hit the UK’s target for all of 2019 of 1.3% GDP growth, the economy must expand by 0.5% in the last three months of the year.

That said, watchdog IHS Markit’s business activity surveys for October and November have both signalled a Q4 contraction.

With this in mind, it’s possible that the UK’s GDP could increase below the 1.3% pencilled in for 2019. What’s more, with PM Johnson set to continue the UK’s Brexit uncertainty into 2020, this may further encourage British businesses and investors to hold off their spending decisions next year.

We’ll see what impact this has on the UK’s GDP in coming months, and its effect on sterling.

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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 Contact Us.

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