Thursday, 20 July 2017

Pound/Euro falls into the €1.11's

It's not been a particularly good week for Sterling, with it starting at €1.14, and today falling into the €1.11's. Despite better than expected UK Retail Sales numbers, the Pound fell due to concerns over Brexit negotiations, with Liam Fox stating that we could have a 'Hard Brexit' with no deal. This sent Sterling lower against other currencies.

Brexit talks weaken the Pound


With seemingly little progress made in talks this week, it seems there isn't much negotiating going on in these negotiations, but rather the EU still digging their heals in and refusing to make any concessions with regards to the jurisdiction of the ECJ on EU residents of the UK, which both sides have said is a 'red line'. One side will need to make concessions, as otherwise there will be a stalemate, and this increases the chance of the UK leaving without a deal, weakening the Pound due to the uncertainty it would cause for business.

Euro strengthens, despite ECB efforts


Elsewhere, the ECB left rates on hold as expected, and also indicated that there would be no change to it's QE programme. Initially this seemed to weaken the Euro but after Mario Draghi gave his press conference, the single currency gained against the Pound and US Dollar, sending GBP/EUR down into the €1.11's. This is a strange one, as he said that they would not set a date for tapering their stimulus programme and may even extend it if necessary. This should logically have weakened the Euro, but the exact opposite has happened. I think that he made these statements on purpose, as they don't want a strong currency, they want the Euro to be weak in order to be more competitive. Markets seem to have seen through this and decided that despite what he said, tapering will happen later this year, and that's strengthened the single currency and made it more expensive to buy.

What next for Pound/Euro rates?


Tomorrow, the only UK release of note is Public Sector net borrowing, however there may well be further soundbites from the UK and EU regarding Brexit, which could drive GBP/EUR. Elsewhere, GBP/CAD rates could move if the latest Canadian data differs from forecast. At lunchtime Canada will release Retail Sales and Inflation numbers.

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