The euro to the pound interbank exchange rate stands at 0.8513 today at the time of writing. This is its highest in two weeks, or since December 4th 2019.
By comparison, back on December 12th, the Eurozone’s common currency was as weak as 0.8280 against sterling. So it’s since risen by over 2.25 cents, or by 2.81%.
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 exchanged currencies in the last fortnight.
To stay updated 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 influencing the value of the common currency against sterling, go to our EUR to GBP Exchange Rate Updates page. Here, simply click on the most recent article.
One reason why the euro rates today have strengthened is because Prime Minister Boris Johnson will legislate to limit the UK’s future EU trade talks, up to a deadline of December 31st 2020.
Another factor why the euro to the pound interbank exchange rate has risen in value is because the UK’s labour market statistics yesterday were mixed, with falling job vacancies in 2019.
A third partial explanation why the EUR to GBP has gained on the interbank market is because UK inflation remained below target in November, lifting the odds of an interest rate cut next year.
EUR to GBP Gains, as Boris to Legislate Against EU Trade Talks Extension
As I mention, one reason why the euro to the pound interbank exchange rate has hit this two-week high today is because UK Prime Minister (PM) Boris Johnson has announced that he’ll legislate to prohibit extending the UK’s future EU trade deal negotiations beyond December 31st 2020.
It’s thought that this risks creating an unexpected new Brexit “cliff edge” at the end of next year.
To explain, the financial markets had thought that PM Johnson might soften his approach to Brexit, following his electoral win last week, in which the Conservative Party won a majority of 80 MPs.
After all, with such a large majority, the PM isn’t beholden to smaller groups, like the European Research Group (ERG), so can negotiate the UK’s trade deal according to his preferences.
However, in the event, it seems that PM Johnson wants to follow through on his promise to “get Brexit done”, included in the Tories’ campaign manifesto, by imposing this tight deadline.
This may be, first, to impress people who voted for the Tories last week, and second, to encourage Brussels to negotiate a fast trade deal with London, rather than dragging out talks over several years.
To be specific, a senior UK government spokesperson said that they’ll “legally prohibit” the trade talks going beyond the end of 2020.
To do this, PM Johnson will introduce an amendment to the Brexit legislation, the Withdrawal Agreement Bill (WAB), which will go before MPs this Friday 20th. With the PM’s new 80-seat majority, it’s thought that the amendment will smoothly pass.
The thing is though, for the financial markets, this raises the prospect of the UK agreeing its future trade deal with the EU in less than 12 months, or defaulting to trading with Europe on World Trade Organisation (WTO) terms, with more tariffs and bureaucracy.
For the world’s money managers, part of the advantage of PM Johnson’s large majority win was to eliminate this possibility.
In turn, if the UK’s businesses and investors see that a “No Deal” Brexit remains possible at the end of 2020, they might continue to delay their hiring and spending decisions.
This could weaken the UK’s GDP (Gross Domestic Product) growth next year, compared to if there were no strict deadline on the trade talks. As a result, the euro to pound interbank exchange rate has gained.
For example, Elsa Lignos at RBC Capital Markets says that "The plan to tie his hands on negotiations suggests further downside for GBP into 2020.”
Mrs. Lignos adds “As noted yesterday, it removes any GBP benefit from the very large Tory majority, effectively putting us back in the position we would have been in with a narrow majority bound by hardliners.”
Euro Rates Today Rise, as UK Wage Growth Slows, Job Vacancies Fall
Moreover, another factor why the euro to the pound interbank exchange rate has hit this two-week high today is because the UK’s labour market statistics yesterday were mixed.
On the bright side, although UK unemployment remained at a multi-decade low, Britain’s wage growth increased less than predicted, while job vacancies continued to fall. This may bode ill for growth in 2020.
According to the Office for National Statistics (ONS) on Tuesday, UK unemployment held at 3.8% in the three months to October, its joint-lowest since the mid-1970s.
This was above economists’ forecasts for a rise to 3.9%, so suggests that the job market remains a bright spot in the UK’s economic landscape. Overall, 24k new jobs were created in this period, above forecasts for 14k.
Following these upbeat headline statistics, Andrew Wishart at Capital Economics says that "The larger-than-expected rise in employment in October suggests the labour market is not getting any worse and may have even started to turnaround."
Meanwhile, Samuel Tombs, chief UK economist at Pantheon Macroeconomics comments that “Job postings should rebound in early 2020.”
However, although the UK’s headline unemployment rate in October remained positive, the details of yesterday’s report were mixed. For example, we learnt that British job vacancies fell by -20k, to 794k total.
This continues a trend throughout 2019, in which the number of available jobs advertised has fallen, following rising demand for workers among businesses from 2012 to 2018.
Moreover, on Tuesday it was revealed that UK wage growth including bonuses rose by just 3.2% in October, well below September’s 3.7% figure, as well as hopes for 3.4%.
This tells us that Britons’ salaries rose less at the start of this quarter than financial markets thought they would. This could discourage Brits from spending more on the high street and online, in coming months.
For instance, Samuel Tombs, chief UK economist at Pantheon Macroeconomics also adds that "We know from business surveys that firms have held back from hiring due to near-term Brexit and political risk.”
Looking to 2020, what with PM Johnson set to extend the UK’s Brexit uncertainty, we’ll see how the UK’s labour market performs, and its effect on the value of the pound sterling.
Euro to The Pound Strengthens, as UK Inflation Below Target, Ahead of BoE
Furthermore, a third partial explanation why the euro to the pound interbank exchange rate has hit this two-week high today is because the UK’s inflation remained below forecast in November, said official statistics today.
This may encourage the Bank of England (BoE) to cut interest rates below their current 0.75%, ahead of the BoE’s last decision of 2019, tomorrow at 12.00 GMT.
UK inflation remained steady at 1.5% last month, said the ONS this morning, above predictions for a fall to 1.4%.
However, this remains below the UK central bank’s official target of 2.0%, so points to lower price pressures in Britain than the BoE would like. Historically, low inflation points to stagnant economic growth, and could reflect the continuing Brexit uncertainty over the UK.
With this in mind, there’s a greater probability that the BoE may cut UK interest rates, either tomorrow or in early 2020.
This is particularly the case, because at the UK central bank’s November meeting, it said that "If global growth failed to stabilise or if Brexit uncertainties remained entrenched, monetary policy might need to reinforce the expected recovery in UK GDP growth and inflation.”
In November, two members of the BoE’s nine-person Monetary Policy Committee (MPC) surprisingly voted to cut UK interest rates.
What with PM Johnson set to create a new Brexit “cliff edge” next year, the Old Lady of Threadneedle Street, as the BoE is affectionately known, may feel the need to ease monetary policy, to support the UK’s economy. So this could be worth watching for.
Andrew Wishart at Capital Economics says that "GDP growth appears to have stagnated in the fourth quarter, and surveys of hiring point to employment growth slowing decisively.”
Mr. Wishart adds that “With Prime Minister Johnson determined not to extend the transition period, Brexit uncertainty won’t disappear either. The upshot is that there is larger chance of a rate cut early next year than most other forecasters think,” which may affect sterling.
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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.