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Euro Rates Today: ‘No Deal’ Brexit UK’s “Central Scenario”

Market CommentaryEuro Rates Today: ‘No Deal’ Brexit UK’s “Central Scenario”
Euro Rates Today: ‘No Deal’ Brexit UK’s “Central Scenario”
Euro to The Pound Today.

The euro to pound interbank exchange rate stands at 0.9248 today at the time of writing. This is it strongest in over 23 months, or since August 27th 2017.

By comparison, back on May 6th this year, the euro was as weak as 0.8505 versus the pound sterling. So it’s since risen by close to +7.5 cents, or by +8.73%.

The euro has now gained in value against the pound for 13 consecutive weeks. This is the euro to pound’s longest winning streak since the euro was set up in 1999.

To put this into context, the euro’s highest point against British sterling was 0.9714, reached in December 2008, during the global financial crisis a decade ago.

So at present, the Eurozone’s common currency is less than five cents, or just -4.79%, below its all-time high against the pound. This may interest you for your money transfer.

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

Also, to check what’s affecting the value of the euro against the pound, visit our EUR to GBP Exchange Rate Updates page. Here, click the newest article to read the recent news.

A first reason why the euro has reached this 23-month high against the pound is because a ‘No Deal’ Brexit is now the UK government’s “central scenario”, said an EU diplomat yesterday.

A second factor why the common currency has gained in value versus sterling is because German factory orders rose more than forecast in June, according to official statistics today.

Let’s look more closely at these reasons why the euro to pound interbank exchange rate has risen. You might find this information useful, for when you transfer money to the UK this year.

Euro to The Pound Today Gains, as ‘No Deal’ Brexit Now UK’s “Central Scenario”

As I mention, a first reason why the euro to pound interbank exchange rate has reached this 23-month high is because a ‘No Deal’ Brexit is now the UK government’s “central scenario”, said an EU diplomat yesterday.

This has weakened the value of the pound, because it’s making the financial markets nervous that the UK will exit the EU by October 31st without an agreement.

The EU diplomat’s comments follow talks between the UK and the EU over the weekend, to see if progress over Brexit can be made, now that Boris Johnson is Prime Minister.

However, far from making progress, the meetings revealed that the UK and EU remain entrenched in their positions, with little room for compromise, while the clock ticks down to the Brexit deadline on Halloween.

For example, a spokesman for the Prime Minister said following this weekend’s meetings that the UK remains committed to exiting the EU by October 31st, “no ifs, no buts”.

The spokesman added that the UK will “throw itself into negotiations with the greatest energy and in the spirit of friendship”, only if the EU abandons the current draft Withdrawal Agreement, including the Northern Irish backstop.

However, the EU has repeatedly stated that it won’t abandon the Withdrawal Agreement. In part, this is because the EU spent three years negotiating the current draft Brexit deal, with ex-Prime Minister Theresa May.

For instance, following the talks, a German government spokesperson told respected financial news source Reuters that "on the table is the best deal possible".

Moreover, the EU diplomat told The Guardian and The Telegraph newspapers that the EU’s “working hypothesis is no deal”, and that Prime Minister Johnson “isn’t bluffing”.

The diplomat added that: "It was clear UK does not have another plan. No intention to negotiate, which would require a plan," and that “it was useful to hear it from the horse’s mouth”, so to speak.

The EU diplomat’s remarks have lifted the euro to pound interbank exchange rate, because they’re the strongest signal yet that the UK is heading for a ‘No Deal’ Brexit.

There’s now less than three months to go before the UK’s Brexit deadline of Halloween, and the UK’s default legal position is that we’ll exit the EU without an agreement, unless either side changes its position.

This has weakened the pound, because if the UK exits the EU without a deal, we’ll abandon our political and economic ties to the EU, with no alternative arrangements.

This means that we’d revert to trading with the EU on World Trade Organisation (WTO) terms, including paying higher tariffs and dealing with more bureaucracy to import and export with the continent.

The financial markets are concerned that, if the UK reverts to trading with the EU on WTO terms, this will slow the UK’s future economic growth and prosperity.

This is because the UK does roughly half its international trade with the EU, so it’s by far our largest trading partner. So if it’s suddenly costlier to trade with the EU after a ‘No Deal’ Brexit, this may hurt the UK’s economy.

EUR to GBP Exchange Rate Strengthens, as German Factory Orders Rise

In addition, another factor why the euro to pound interbank exchange rate has reached this 23-month high is because Germany’s factory orders rose in June, said official statistics today.

This has increased optimism that the recent slowdown in Germany’s manufacturing sector, arguably the backbone of the Eurozone’s economy, is at an end, and Germany’s economy will now accelerate.

According to the Deutsche Bundesbank this Tuesday 6th August, Germany’s factory orders rose by +2.5% in June compared to a month ago. This is beyond economists’ predictions for a +0.5% increase, and well above May’s -2.0% decline.

On a yearly basis, Germany’s manufacturing orders still fell by -3.6%, yet this was far beyond the financial markets’ forecasts for a -7.0% fall.

Germany’s factory orders rose in June, in particular because more international customers purchased investment goods. It’s hoped that these upbeat figures will mark a turnaround for Germany’s manufacturing sector, following several months of falling activity.

In particular, Germany’s economy has been buffeted by US President Donald Trump’s trade disputes, and the threat of tariffs on Germany’s vehicle exports to the USA.

The euro also strengthened following these positive German factory figures, because they reduce the chances that the European Central Bank (ECB) will cut interest rates in September, or expand its monetary stimulus.

It’s widely forecast that the ECB will reduce borrowing costs below 0.0% next month, yet these optimistic German data might convince the ECB to stay put for now.

However, it’s worth noting that other Eurozone economic data released so far this week have been less optimistic. For instance, investors’ confidence in the currency bloc fell to -13.7 in August, said Sentix yesterday.

This is well below economists’ hopes for -7.7, as well as July’s figure of -5.8. This tells us that money managers in the Eurozone feel increasingly downbeat about the bloc’s prospects.

Also, the Eurozone’s services PMI (Purchasing Managers’ Index) eased to 53.2 in July, said economics watchdog IHS Markit on Monday 5th August.

This is below June’s figure of 53.3, and so suggests that the currency bloc’s services sector, which includes restaurants, social care workers or lawyers, is decelerating too. Until now, services have been a bright spot for the Eurozone.

So these figures indicate that, even though Germany’s factory orders increased in June, the Eurozone’s economy continues to slow. Looking ahead, this could affect the value of the euro against the pound.

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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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