The pound to euro exchange rate experienced a relatively quiet session on Wednesday, moving within a typical 50-point range. The pound—euro exchange rate closed at €1.1497, down 0.2% on the day. The pair was trading lower again in early trade on Thursday.
|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. 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 GBPIn 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.|
The pound remained well supported in the previous session lifted by Brexit optimism. According to Spain’s foreign minister Joseph Borell, another Brexit deal is already being hammered out in Brussels. His comments are in sharp contrast to those of Chief EU negotiator Michel Barnier and EU Commission President Juncker who have continually stated that negotiations will not be reopened. Political analysts believe that the two sides are working on legal text and legal interpretations to reassure Parliament. Whilst investors are hopeful, it remains to be seen whether this will be enough for May to push the deal through the House of Commons.
|Why is a “soft” Brexit better for sterling than a “hard” Brexit?|
|A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value.|
Investors will continue watching the domestic political scene in the UK. 8 Labour party members and three pro-EU conservative MP’s have defected to the Independent Group, a new political party. The move by Europhiles is an embarrassing setback for Theresa May and her Brexit policy. More MP’s defecting could pull the pound lower as domestic political uncertainty increases.
Today Brexit will remain in focus. Public sector net borrowing figures may attract some attention but are unlikely to provide a big distraction.
The euro was broadly in favour on Wednesday thanks in part to a weaker dollar and thanks in part to improving eurozone consumer confidence. The euro was well supported as the dollar moved lower in anticipation of a more cautious Federal Reserve. The euro traders inversely to the dollar. When the dollar falls the euro rises which explains some of the strength in the common currency on Wednesday.
Eurozone consumer confidence edged higher to -7.4 in February, up from -7.9 in January. Whilst this is a step in the right direction, it is more a paring of pessimism rather than a rising of optimism, given that the index remains so firmly below 0.
Today the health of the eurozone economy will remain in focus as investors look towards the Purchasing Managers Index (PMI) readings for Germany and the eurozone. German inflation will also be under the spotlight after falling -0.8% month on month in January. Another weak reading could pull the euro lower.
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