The euro to the pound interbank exchange rate stands at 0.8550 today, its highest in four days, or since Thursday 16th. By comparison, back on Friday 17th, the Eurozone’s common currency was as low as 0.8490 versus sterling, so it’s since risen by over 0.5 cents, or by 0.71%.
The EUR to GBP interbank exchange rate has strengthened, in part because the UK’s Chancellor of The Exchequer, Sajid Javid, made comments over the weekend, suggesting that the UK will diverge from the EU at the upcoming trade talks.
Speaking to The Financial Times broadsheet, Mr. Javid said that: "There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union - and we will do this by the end of the year.” The Chancellor added that UK companies would have to “adjust”.
Mr. Javid’s remarks have weakened the pound, because up until now it was hoped that the UK would seek as much regulatory alignment as possible with the EU, once Brexit gets done on January 31st.
This is because, with closer regulatory alignment, it’s thought that Britain would sign a better trade deal with Europe, by far its closest partner for imports and exports. In turn, a close trading relationship might support the UK’s economy in 2021 and beyond.
Javid Suggests UK Might Seek Divergence, Weakening Pound
In the event however, Mr. Javid’s comments suggest that the UK may seek divergence, to enable the UK to pursue trade deals with third-party countries like the USA, Australia or India, although perhaps simultaneously limiting the UK’s access to the EU’s market.
Daniel Been, a strategist, says that "Brexit uncertainty will continue throughout 2020 if this quote from the Chancellor of the Exchequer, Sajid Javid, is anything to go by."
Meanwhile, strategist Adam Cole adds that "The comments, which would imply limited access to European markets seem to diverge from the 'common high standards' implied by the political declaration on the future relationship." So this has weighed down the value of sterling.
UK PMIs for January Due on Friday, May Affect BoE Decision
Looking to this week, economics watchdog IHS Markit releases its “flash” PMI for January for the UK’s services and manufacturing industries, this Friday 24th at 09.30 GMT.
This data will be closely watched, because it may contain the first concrete signs of whether the UK economy has enjoyed a post-election bounce. In turn, this could help determine if the Bank of England (BoE) decides to keep interest rates at their current 0.75% or cut them, when it next convenes on January 30th.
The UK’s services PMI is forecast at 51.1, above both November’s 50.0, as well as the 50.0 figure that separates economic growth from contraction, while UK manufacturing is pencilled in at 48.8, above November’s 47.5. These data have the potential to affect the interbank exchange rate.
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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.