GBP/EUR: UK GDP & Eurozone CPI In Focus

The pound ended Thursday lower versus the euro despite a Brexit deal being agreed between the UK and the EU. The pound euro exchange rate soared to a high of €1.1660 before quickly paring those losses, in a volatile day of trading. The pair finished the day -0.2% at €1.1564. The pair is trending lower in early trade on Friday

Pound investors cheered the UK and the EU agreeing a new Brexit deal. However, optimism soon faded as the Northern Irish DUP party, whose vote is critical to get the Brexit deal through Parliament, quickly rejected the new deal. Without the support of the DUP it is questionable as to whether the Boris Johnson’s Brexit deal will win a majority in the House of Commons.

The EU said that there will be no extension to Brexit, backing rebel Remainers into a corner. This enabled the pound to pick up off session lows as it boosts the chance of a deal going through. However, the pound is under pressure this morning as investors weigh up the possibility of the deal winning enough votes on Saturday.

Euro Advances In Risk On Environment
But the DUP is not the only concern for the pound. A report on Bloomberg said that Boris Johnson’s Brexit deal is worse for the economy’s than Theresa May’s. The report said that Boris Johnson’s deal, over time, is consistent with economic growth of around 1.5%. Under Theresa May’s deal GDP, would have been consistent with 1.7% and if the UK remained in the European Union growth of 1.9% would have been expected. Whilst 1.5% is still better than a no deal scenario, it is still the weakest option.

The euro was broadly in favour on Thursday, just less so than the pound. The euro received a boost from the Brexit breakthrough. This is because a Brexit deal would also benefit economies in the eurozone through reduced uncertainty and reduced risk.

There is no high impacting eurozone economic data due for release. The euro is rising in a quietly risk on environment following the release of mixed data from China. On the one hand Chinese GDP was just 6% in the third quarter, the lowest level since1990. However, on the other hand industrial production rose by 5.8% substantially above expectations. This boosted sentiment. When investors have a larger risk appetite, the euro tends to advance.

 

What do these figures mean?
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.

 

For example, it could be written:

1 GBP = 1.13990 EUR

Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound

.

Or, if you were looking at it the other way around:

1 EUR = 0.87271 GBP

In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro.

 

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