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Euro Rates Today Update: EUR Reaches 10-Day High Versus GBP

Market CommentaryEuro Rates Today Update: EUR Reaches 10-Day High Versus GBP
Euro Rates Today Update: EUR Reaches 10-Day High Versus GBP
Euro Rates Today.

In our latest update of the euro rates today, the euro to pound interbank exchange rate has hit 0.8645. This is the euro's highest point versus the pound in 10 days, or since April 30th.

What's more, the EUR has strengthened versus the GBP for the last 6 days, since May 4th, from a low of 0.8492. So, this is a gain of over +1.5 cents, or +1.8%.

To put this into context, €250,000 in pounds at today's 10-day high interbank exchange rate would be worth £216,125.

This compares to £212,300 on May 4th, when the interbank exchange rate was at just 0.8492. So, for the same euro amount, this is an increase in the sterling total of +£3,825.

This might be of interest to you, if a British owner of a holiday home in Spain or France, or you're a Eurozone business owner doing imports and exports with the UK.

This is because, when you transfer money to the UK from your Eurozone bank account, you might now get a notably higher pound total, compared to earlier this week.

Some key factors why the euro to pound interbank exchange rate has hit this 10-day high are, first, the euro has risen, as financial markets seek safe haven from the USA's trade war with China.

In addition, in the UK, the Brexit outlook remains unclear, with Prime Minister Theresa May's position under growing threat. Also, it's forecast that the UK's economic growth might slow, in coming months.

Let's look more closely at these factors that have helped lift the EUR to this 10-day high versus the GBP. You might find this helpful, for when you decide to transfer money to the UK, whether you're a Brit in Europe, or for international payments for your business.

Euro Rises, as Safe Haven from America and China's Trade War

A first partial explanation why the euro has strengthened versus sterling so far this week is because global money managers are buying Eurozone assets, as a safe haven from the USA and China's escalating trade war.

This morning, the USA lifted its tariffs on US$200 billion of Chinese imports to America, to 25% from 10%. This follows US President Donald Trump's remarks on Wednesday, at a speech in Panama City Beach, Florida, that China "broke the deal" over previous trade commitments between the two countries.

So far, Beijing has said that it will take "necessary countermeasures" to the USA's lifting its tariffs, without specifying what exactly it has in mind.

It's worth mentioning that the USA and China continue to negotiate. For example, Mr. Trump said this week that he's received a "beautiful letter" from China's President Xi Jinping, urging the two countries to "work together".

Normally, when there's an escalation in global trade tensions, like this week, we'd expect the US dollar to strengthen. This is because financial markets tend to buy American assets, as a secure investment in times of uncertainty.

After all, the USA is the world's largest economy, and the backbone of the global financial system, so it's resistant to global ups-and-downs.

However, following Mr. Trump's decision to go ahead and lift tariffs on China, the US stock market has fallen sharply.

This is because financial markets seem genuinely concerned that the USA's and China's escalating trade war might do harm to America's economy, in the coming months. So this time investors have sold US assets, contrary to what normally happens.

Instead, the euro has strengthened, as international money managers turn to Europe, as a safe haven from America and China's trade wars.

This is because the Eurozone is a third party in Washington and Beijing's trade upset, and the 19 members of the euro make up the world's largest trading bloc. So, surprisingly, this has helped lift the value of the EUR.

Cross-Party Talks Falter, Pressure on Theresa May Grows

In addition, a further factor why the euro rates today have risen is because, in the UK, the outlook for Brexit remains unclear.

In particular, the Conservative and Labour Parties' cross-party negotiations have faltered. Also, the pressure on Prime Minister Theresa May continues to grow, according to the latest reports.

Since April, when the EU extended the UK's Brexit deadline to October 31st, the Tories and Labour have been negotiating a form of Brexit to pass through the House of Commons.

The goal was to agree a version of Brexit that the majority of MPs would vote for, to then present to the EU, so that the UK could finally exit Europe.

However, this Tuesday, the government announced that the UK will contend the European Parliament elections on May 23rd. This suggests that the Tories have little faith that they'll reach a deal with Labour before this date.

In addition, Labour accused the Conservatives of being "disingenuous" about entering a Customs Union with the EU, after the UK leaves. As a result, ITV's Political Editor, Robert Peston, has "pronounced dead" the cross-party talks.

Meanwhile, the pressure is growing on Prime Minister May to announce when she'll resign. For example, yesterday, the former Work and Pensions Secretary and Brexiteer, Esther McVey, revealed that she'll stand to be leader of the Conservatives and Prime Minister.

Ms. McVey is one of several candidates vying for Mrs. May role, including former Foreign Secretary Boris Johnson, reports newspaper The Express.

In addition, on Thursday, the Conservatives' influential 1922 Committee of backbenchers convinced the Prime Minister to hold a fourth Meaningful Vote on her Brexit draft.

The 1922 Committee's hope is that, if Mrs. May's draft passes the House of Commons, she'll resign, and if Mrs. May's draft fails, she'll resign too. So Theresa May's position looks increasingly precarious.

With this in mind, it remains unclear when the UK will exit the EU and on what terms. It's also uncertain who'll be leader of the Conservatives and Prime Minister in a few weeks time.

This may persuade UK businesses and investors to hire fewer employees and spend less on new equipment, thus potentially slowing the UK economy. In turn, this has contributed to weaken the GBP.

UK GDP Forecast to Rise, on Brexit Stockpiling

Looking forward, a factor that may affect the euro to pound interbank exchange rate is the release of UK GDP (Gross Domestic Product) growth for Q1 2019, today at 09.30.

In particular, it's forecast that Britain's economy expanded by +0.5% between January and March this year, and +1.8% compared to a year ago. This compares to +0.2% growth in Q4 2018, and +1.4% year-on-year.

However, it's worth mentioning that, even if the UK economy accelerated in early 2019, the sources of this growth may be unsustainable.

To be specific, economists predict that Brexit stockpiling by consumers and manufacturers might have artificially lifted the UK's GDP growth above its trend rate, between January and March.

For example, Howard Archer, Chief Economic Adviser at the EY Item Club, said ahead of these UK growth figures that: "Delays to Brexit, a difficult domestic economic and political backdrop and slower global economic activity have resulted in a weaker outlook for UK GDP growth this year."

“Many employers will be keen to limit their labour costs, which will also impact employment growth, and there are signs in recent surveys that the growth in pay awards has already levelled off. Consumers may therefore be cautious about making major purchases and the recent strong retail sales growth might falter," added Mr. Archer.

With this in mind, even though we'd normally expect quicker economic growth to strengthen the pound, in this case, sterling might be unaffected by faster GDP growth figures.

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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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