GBP/EUR: Gloomy Brexit News Weigh On Pound vs. Euro

The pound gave up ground versus the euro on Monday. The pound euro exchange rate steadily declined across the session hitting a low of €1.1566. The pair closed off the low of the day.

Brexit is taking a back seat for now and investors are focused on the up coming general election on 12th December. Next week, Parliament will be dissolved, starting a highly uncertain election campaign. As things stand Boris Johnson and the Conservatives stand to win a sizeable majority. This could help Boris Johnson ensure his Brexit deal passes through the House of Commons without further problems. In short, Brexit will be more likely to happen by 31st January with a deal in place. This would be goods news for the pound as it would mean the UK avoids a no deal Brexit and avoids the continued uncertainty that kicking Brexit down the road has achieved.

Data showed that construction activity picked up in October from September’s low of 43.1. However, at 44.2, the construction sector remains deep in contraction.

Today investors will look to the service sector pmi. The service sector is by far the most dominant sector in the UK economy, making up 80% of economic activity. Analysts are predicting that activity in the service sector picked up in October to 49.7, up from 49.5 in September. This would mean that the sector remained in contraction at the start of the fourth quarter.

Should the data reading be weak, the pound could fall as investors increase bets that the Bank of England will look to cut interest rates sooner rather than later.

ECB’s Christine Lagarde Avoids Monetary Policy Topic

The euro advanced in the previous session despite eurozone manufacturing pmi data showing that the sector remained in contraction in October. The pmi ticked higher to 45.9 in October, up from 45.7 the month previous. Whilst the data showed that activity had increased marginally, it remains stifled by the ongoing US — China trade war and the UK’s exit from the European Union.

Investors were also watching ECB President Christine Lagarde’s maiden speech, hoping for some insight over future monetary policy. However, investors were left disappointed with no mention of monetary policy.

Today investors will digest second tier data, producer price index.

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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