The euro to the pound interbank exchange rate stands at 0.8539 today at the time of writing.
By comparison, back on January 1st 2020, the Eurozone’s common currency was as weak as 0.8436 versus sterling. So it’s since strengthened by over one cent, or by 1.22%.
This is because, when you transfer money to the UK from the Eurozone, you could get a higher pound total today, compared to if you’d bought sterling in the last week.
To stay up-to-date 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 common currency versus sterling, go to our EUR to GBP Exchange Rate Updates page. Here, simply click on the most recent article.
One reason why the EUR to GBP interbank exchange rate has strengthened since January 1st is because the financial markets are concerned about the UK’s upcoming future EU trade talks.
A second partial explanation why the euro to the pound interbank exchange rate has risen is because the USA has killed Iranian General Qassem Soleimani, benefiting “safe haven” currencies.
However, looking to today, the euro to the pound on the interbank market could be influenced, because the UK services sector’s performance for December has been upgraded, says trusted data.
Looking to this week, the euro’s value against sterling might be affected by economic data, including Germany’s industrial production for November, and Eurozone inflation figures for December.
EUR to GBP Rate Strengthens, on UK/EU Trade Talks Concerns
As I mention, one reason why the euro to the pound interbank exchange rate has strengthened since January 1st is because the financial markets are concerned by the UK’s upcoming future EU trade talks.
In particular, the world’s investors are worried that the talks might be protracted, like the Brexit negotiations, and by Prime Minister (PM) Boris Johnson’s deadline of the end of 2020.
To explain, PM Johnson has legislated to limit the trade talks up to December 31st 2020. It’s thought that the PM has done this, both to demonstrate his desire to “get Brexit done”, and to encourage the EU to negotiate a favourable trade deal quickly.
However, such trade deals normally take six or seven years to negotiate, so PM Johnson’s timetable risks being very limited.
For the financial markets, the risk is that, if the UK and the EU don’t reach a future trade deal by the end of this year, then Great Britain will default to trading with Europe on World Trade Organisation (WTO) terms.
It’s thought that this will involve more tariffs and bureaucracy, in which case it might be more costly and complicated for UK and EU firms to import and export with each other.
To begin the future trade talks, PM Johnson is set to host the new European Commission President, Ursula von der Leyen, this Wednesday at Downing Street. It’s thought that this may set the tone and pace for the talks to come.
So we may learn if the UK/EU trade negotiations will be protracted, like the Brexit talks, or if they’ll be smooth, as both PM Johnson and the EU prefer.
Shamik Dhar, Chief Economist at BNY Mellon, told Bloomberg TV recently that "Sterling traded much of 2019 as a Brexit currency and so long as the 'no deal' risks remains I think it will remain weak.”
Also, Robert Howard at Thomson Reuters says that "Uncertainty remains over trade talks between the EU and UK, which are expected to begin this quarter.” This has weakened sterling.
Euro to Pound Rate Rises, as US Kills Iranian General
In addition, another factor why the euro to pound interbank exchange rate has risen is because, over the weekend, the United States has admitted to killing Iranian General Qassem Soleimani in Iraq.
This has inflamed geopolitical military tensions, as the financial markets wait to see if Iran will retaliate. This tends to benefit so-called “safe haven” currencies like the US dollar and, often, the euro.
On Friday 3rd January, US military forces in Iraq assassinated Irani General Qassem Soleimani, which President Donald Trump later announced. The world’s investors are now waiting to see if Iran will respond.
However, on Saturday 4th, President Trump warned that the USA has preselected 52 Iranian sites to attack, if Iran strikes against US forces or interests in Iraq or the Middle East.
While the world’s money managers wait to see what happens next, they tend to buy “safe haven” currencies, particularly the US dollar, Swiss franc, Japanese yen and, often, the euro.
These are called “safe haven” currencies, because they belong to stable, large, trustworthy countries, whose governments always pay their debts. So they’re considered safe harbours in stormy global seas.
In turn, this has lifted the value of the euro versus sterling. In particular, this is because, what with Brexit and the upcoming UK/EU trade talks, the UK’s political outlook is more uncertain than usual.
This tends to encourage the financial markets to sell sterling in times of geopolitical uncertainty, which weakens its value, in favour of larger, more stable economies will clearer outlooks.
Euro to The Pound Might Be Affected, as UK Services PMI Revised Higher
However, turning to today, the EUR to GBP interbank exchange rate could be influenced, because the UK’s services PMI (Purchasing Managers’ Index) for December has been revised higher, according to economics watchdog IHS Markit this morning.
This could affect the value of sterling, because this suggests that UK services did better than previously thought in late 2019.
The UK’s services PMI for December has been upgraded to 50.0 this morning, from the previous estimate of 49.0. This is exactly the 50.0 figure that separates economic growth from contraction.
So this tells us that, rather than contracting in the last month of last year as previously thought, the UK’s services sector only stagnated. Clearly, this is preferable to shrinking economic activity.
These upbeat statistics could influence sterling, because the UK’s services sector makes up 80% of Britain’s economy. UK services comprise vast swathes of businesses, from financial services and lawyers, to care homes and restaurants.
So when the services sector improves, this often accelerates the UK’s GDP (Gross Domestic Product), a trusted measure of economic growth.
In particular, what with UK services now stagnating in December, it’s less likely that UK GDP shrank in the last three months of 2019. This may affect the value of sterling, looking to the coming weeks.
Andrew Wishart at Capital Economics says about these data that "Figures covering the pre-election period are affected by high political uncertainty, so the poor PMIs for December shouldn’t cause too much concern.”
“The first “clean” data for the post-election period. It is in these we need to see some improvement in order to confirm a “Boris bounce,” adds Mr. Wishart. So this too may affect sterling.
Euro’s Value Versus Sterling Could Be Influenced, by UK/Eurozone Economic Data
Moreover, turning to this week, the euro to the pound interbank exchange rate may be impacted, by UK and Eurozone economic releases.
In the UK, these include the British Retail Consortium (BRC) retail sales figures for December, released on Thursday 9th at 00.01 GMT. In the Eurozone, they include Germany’s industrial production for November, and December’s inflation statistics.
The BRC’s UK retail sales data for November fell by 4.9%. So the financial markets will be eager to see if Britons spent more on the high street and online last month.
This is especially the case, because December’s retail sales figures include the important Christmas period, in which people tend to spend more. Retail sales make a significant part of UK GDP, so this might affect sterling.
Meanwhile, Germany’s factory orders for November are released on Wednesday 8th at 07.00 GMT. They’re expected to show a 0.1% increase, partially undoing October’s 0.4% decline.
This may signal the start of a recovery in Deutchland’s manufacturing output, especially given the fact that, in October, President Trump announced that he’ll sign a “first phase” trade pact with China.
Also, Germany’s industrial production statistics for November will be made public on Thursday 9th at 07.00 GMT. These are forecast at 0.7%, which would similarly partially reverse October’s 1.7% fall.
Looking to the Eurozone, the common currency bloc’s inflation figures for November are released on Tuesday 7th at 10.00 GMT. These are forecast to show a 0.3% rise, up to 1.3%.
However, although this would point to higher price pressures, and so a more buoyant economy, 1.3% would remain below the European Central Bank (ECB) official target of close-to-but-below 2.0%.
With this in mind, the ECB looks likely to keep Eurozone interest rates at all-time lows of 0.0% for the foreseeable future. In turn, this might affect the value of the euro in the coming weeks and months.
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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.