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Euro to The Pound Today: EUR/GBP Rate Reaches 11-Week High

Market CommentaryEuro to The Pound Today: EUR/GBP Rate Reaches 11-Week High
Euro to The Pound Today: EUR/GBP Rate Reaches 11-Week High
Euro to The Pound Today.

Are you a Brit thinking of selling your holiday home in Spain or France, and repatriating the money to the UK? Alternatively, are you a Eurozone business owner, sending international payments to the UK for imports and exports?

If so, it may interest you to know that the euro to pound interbank exchange rate has reached an 11-week high. To be specific, the euro to the pound today has hit 0.8678, its strongest since February 28th

The euro has risen versus sterling for the past 10 days, since May 4th, when the interbank exchange rate was as weak as 0.8492. As a result, since May 4th, the common currency has climbed against the pound by over +1.75 cents, or +2.19%.

To put this into context for you, €250,000 in GBP at today's 11-week high interbank exchange rate of 0.8678 would be worth £216,950. By comparison, at the interbank exchange rate on May 4th of 0.8492, €250,000 would have been worth just £212,300.

So in the last 10 days, on the same euro amount, that's an increase in pounds of +£4,650.

This rise in the euro to sterling interbank exchange rate might be of benefit to you, because when you transfer money from your Spanish or French bank account to the UK, you could now get a notably higher pound total, compared to in recent weeks.

You might like to keep this in mind, for when you decide to repatriate the funds from selling your Mediterranean holiday home, or for currency for your business.

Two partial explanations why the euro to the pound today has hit this 11-week high are, first, because the Conservative and Labour's cross-party Brexit talks look close to collapse. Second, a senior Bank of England policymaker has warned that further Brexit uncertainty may hurt the UK's business investment.

However, looking forward to later today, the UK's unemployment and wage growth figures for the three months to March will be released.

It's forecast that the UK's low joblessness and rising salaries may remain a bright spot of the UK's economic outlook, even with the Brexit uncertainty. So this might affect the value of the euro versus the pound.

Let's look more closely at these factors that have affected the euro to pound interbank exchange recently. You might find this useful to keep in mind, for your money transfers.

PM May Under Pressure to End Cross-Party Brexit Talks

A first factor why the EUR has touched this 11-week high versus the GBP is because it's thought that the Conservative and Labour Parties' cross-party Brexit talks are close to collapse.

In particular, Prime Minister Theresa May is under growing pressure to end the negotiations, from among her own Tory MPs.

For example, Chancellor of The Exchequer Philip Hammond was reported in The Times newspaper this weekend saying that, while talks are "amiable", they're based on the "false premise" that a politically acceptable deal could ever be struck. As a result, Mr. Hammond recommends that the Prime Minister put an end to negotiations with Labour.

In addition, in The Mail on Sunday this weekend, the Conservative MP and former Defence Secretary, Gavin Williamson, writes that the cross-party talks are a "grave mistake".

Mr. Williamson argues that striking a deal with Jeremy Corbyn's Labour Party will be "fatal" for the Tories, as this would encourage Tory voters to defect to other parties.

In addition, it's worth noting that Labour has toughened their conditions for a cross-party deal to be signed.

To be specific, this weekend Labour's Chief Negotiator, Sir Keir Starmer, told The Guardian newspaper that Labour would only reach a deal with Mrs. May, if there's a "confirmatory vote". This would amount to a second Brexit referendum.

Practically all Tory Party members oppose a second referendum, including the Prime Minister.

With this in mind, given that Labour are putting near-impossible conditions on signing a deal, and high-ranking Conservative MPs want Mrs. May to end the cross-party talks, it looks likely that the Tories and Labour's Brexit negotiations will soon collapse.

However, if the cross-party talks fail, this will extend the UK's Brexit limbo. For example, Zach Pandl at Goldman Sachs writes that: "Without tangible signs of progress or the start of a broader parliamentary process, the risk is that the UK’s exit date slips further—possibly deep into this year or even, eventually, beyond."

In turn, if British companies don't know the terms on which the UK will exit the EU, or the basis of our future relationship, they may continue to hold back from hiring and buying new equipment.

Meanwhile, global money managers could feel discouraged from buying UK assets, as the UK's outlook remains up-in-the-air. So this has contributed to weaken sterling.

Bank of England''s Broadbent Warns of Risks of Brexit Uncertainty

Also, another reason why the euro to the pound today has reached this 11-week high is because the Deputy Governor of the Bank of England, Ben Broadbent, has warned that, if the UK's Brexit uncertainty continues, this could further damage business investment in Great Britain, and the UK's economic growth outlook.

Speaking to the Press Association news agency this Monday 13th May, Mr. Broadbent said that "It's pretty clear that investment has been feeling the consequences of the uncertainty about Brexit and particularly the possibility of a bad outcome. If you continually expect news to arrive imminently - a resolution - then that can have quite a depressing effect on investment."

This is to say, while it's unclear on what terms the UK will exit the EU, and how we'll trade with Europe in future, British companies have been holding back from making major spending decisions.

This is because we don't know if we'll continue to be able to hire European workers easily, or if trading with Germany, France or the Netherlands will become more difficult in future.

In turn, as UK businesses hire and invest less than if there were Brexit clarity, this means there are fewer people in work than there otherwise might be, and British firms are less productive than could be the case.

As a consequence, this slows the UK's Gross Domestic Product (GDP) growth, and thus weighs down the value of the pound, versus other currencies.

Moreover, the Bank of England's Mr. Broadbent said that the UK's central bank could be expected to raise interest rates only slowly.

In his interview with Press Association, the Deputy Governor remarked that UK interest rate hikes would be "gradual and limited", and the "emphasis is on the 'gradual' bit of limited and gradual."

This too has helped weaken sterling on the foreign exchange markets. This is because, when UK interest rates stay low, international money managers make lower profits from investing in British assets. As a result, this cuts global demand for the pound, which depresses GBP's value too.

UK Unemployment Forecast to Stay Low, Wage Growth Solid

However, looking forward to today, it's possible that solid UK economic data might influence the euro to pound interbank exchange rate.

In particular, UK unemployment and wage growth figures for the three months to March 2019 are released at 09.30, in which British joblessness and salary gains are predicted to be a bright spot, among the Brexit uncertainty.

In particular, financial markets and economists forecast that UK unemployment held at 3.9% between January and March, its lowest since the mid-1970s.

Meanwhile, it's thought that average UK earnings grew by +3.4% in Q1 compared to a year ago, just -0.1% below February's figure, and close to the highest since the financial crisis in 2008.

If these figures prove accurate, they will suggest that the UK economy remains resilient, even though we're no closer to a Brexit resolution.

This may encourage the financial markets over Britain's economic growth prospects, and encourage global money managers to buy the pound, to invest. So this might affect the value of the euro versus the pound, later today.

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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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