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Sterling v Euro Rate Hits 3-Week High, as Brexit Angst Fades

Market CommentarySterling v Euro Rate Hits 3-Week High, as Brexit Angst Fades
Sterling v Euro Rate Hits 3-Week High, as Brexit Angst Fades
Sterling V Euro.

There's potentially helpful news if you're a Brit planning to transfer money to Spain or France today. The sterling v euro interbank exchange rate has hit 1.1635, its highest in over 3 weeks, or since April 8th.

To put this into context, back on April 23rd, the pound was as low as 1.1521 versus the euro. So it's since strengthened by +0.98%, or over +1 cent.

At today's interbank exchange rate, £250,000 would be worth €290,875. This compares to €288,025 on April 23rd. So that's an increase of €2,850!

This might be of benefit to you, if you intend to buy euros, to emigrate to Europe, or buy a holiday home on the Costa del Sol or Cote d'Azur, for example.

Two reasons that partially explain why the sterling v euro rate has reached this 3-week high are, first, that the Conservatives and Labour's Brexit talks are going well, say new reports. Second, it's thought that the Bank of England might signal that it intends to lift UK interest rates, at its meeting tomorrow.

Let's look more closely at these factors that have influenced the pound to euro exchange rate, which may help you for your money transfer.

Conservative and Labour Brexit Talks Making Progress, Say Reports

A first factor why the pound to euro interbank exchange rate has hit this 3-week high is because it's been reported that the Conservative and Labour's negotiations to reach a Brexit agreement are going well, say new reports.

The UK's 2 largest political parties have been in talks to agree a version of Brexit, since the EU agreed to extend the UK's Brexit deadline by 6 months recently, up to October 31st. It's hoped that the Tories and Labour will agree a form of Brexit to pass through Parliament, to then agree with the EU.

According to an article by The Times' Policy Editor Oliver Wright on Wednesday, there's been "substantive" moves in the negotiations. Mr. Wright says that "the government side appeared to have shifted its position on the [Labour's] key demands around a closer customs union".

Meanwhile, Prime Minister Theresa May's deputy, David Lidington, says that talks have been "productive" and "positive", while both sides seemed to "want to make progress" that would require "flexibility and compromise".

The Times' report has lifted financial markets' hopes that the Conservatives and Labour will agree a Brexit deal soon. When they do, this will contribute stability to the UK's political and economic outlook, thus strengthening UK economic growth, and the pound too.

Bank of England Could Signal UK Interest Rate Hike Tomorrow

Moreover, another factor why the sterling v euro interbank exchange rate has reached this 3-week high is because it's thought that the Bank of England (BoE) may signal that it will hike UK interest rates, at its policy meeting tomorrow, reports Bloomberg.

At the UK central bank's meeting this Thursday, it's widely forecast that the 9-person interest rate-setting committee will vote to hold UK interest rates steady for now, at 0.75%. However, it's possible that the BoE could signal that it will lift interest rates in the future, in the BoE's accompanying statement.

Ahead of the meeting of the Old Lady of Threadneedle Street, as the Bank of England is affectionately called, money markets have lifted the odds that the BoE will hike interest rates by mid-2020 above +50%. This compares to predictions that the BoE would cut UK interest rates as recently as March.

If the Bank of England suggests that it might lift UK interest rates in the foreseeable future, this would mark a clear contrast with other central banks. For example, the European Central Bank recently cut its economic growth forecasts for the Eurozone, while the US Federal Reserve has paused its rate hike cycle.

As a result, if the UK's central bank strikes an optimistic tone this Thursday, this could encourage international money managers to buy British assets, in anticipation that UK interest rates will soon rise. In turn, to buy these assets, this would boost demand for the pound, and so lift sterling's value versus the euro.

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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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