The pound to euro interbank exchange rate stands at 1.1798 today at the time of writing, very close to yesterday’s 1.1811. By comparison, back on Monday 6th January, sterling was as weak as 1.1705 versus the Eurozone’s common currency. So it’s since strengthened by close to one cent, or by 0.8%.
A partial explanation why the sterling vs euro interbank exchange rate remains steady today is because UK Prime Minister (PM) Boris Johnson is set to meet new European Commission (EC) President Ursula von der Leyen, in Downing Street. Here, the two leaders will begin negotiations on the UK’s and the EU’s future trade deal.
It’s thought that PM Johnson’s and President der Leyen’s meeting today may set the tone and pace for the talks over the coming months. Depending on whether today’s conversation goes smoothly or otherwise, this may affect the pound.
Sterling Could Be Affected, as Johnson Limits Talks to Year End
In particular, PM Johnson has legislated to limit the UK’s and the EU’s future trade negotiations to the end of this year, on December 31st 2020.
The PM has done this, seemingly to emphasise his pledge to “get Brexit done”. However, President der Leyen has remarked that she thinks the future trade talks might have to be extended, as such trade agreements normally take six or seven years to finalise.
There’s a risk that, if the UK and the EU don’t reach a trade deal by the end of 2020, then Great Britain could default to trading with Europe on World Trade Organisation (WTO) terms. This may involve more tariffs and bureaucracy, which could slow the UK’s economy in future, and thereby impact sterling.
EU27 Yet to Agree Trade Talks Position, Decision Due February 15th
However, it’s useful to note that the EU’s 27 member states have not yet agreed their position about the trade talks with the UK, to be delivered to the EU’s Chief Brexit Negotiator Michel Barnier. It’s thought that this process will finalise on February 15th, in which case the negotiations will begin in earnest in early March.
With this in mind, it’s possible that, while today’s meeting between PM Johnson and President der Leyen may set the tone for the future trade talks, little of substance may be decided. This too could affect sterling today.
German Factory Orders Surprisingly Fall in November, May Impact Euro
Turning to the economic calendar, there’s nothing of note for the UK today.
That said, this morning we’ve learnt that Germany’s factory sales fell by 1.3% in November, well below forecasts for a 0.3% increase. This suggests that the US/China trade war continues to weigh down demand for Deutschland’s exports, which could affect the value of the euro.
Also, at 10.00 GMT today, the Eurozone’s economic sentiment indicator for December is released, which may influence the common currency too.
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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.