The pound tanked lower versus the euro on Tuesday. The pound euro exchange rate dropped over 1.6% wiping out its election gains, to close at €1.1767. The pair is drifting lower again in early trade on Wednesday.
Brexit fears have returned to haunt pound investors. The pound tumbled lower after newly elected Prime minister Boris Johnson said that the transition period will not be extended. This means that the UK will have just one year, until December 2020, to arrange a trade deal with the EU. This is a highly ambitious task. Should no trade deal be agreed then the UK would leave the EU without a trade deal in place. This would be a cliff edge Brexit, which is the worst option for UK businesses, the UK economy and therefore the pound. The markets have been caught by surprise by Boris Johnson’s move.
With no deal Brexit back on the table, pound investors brushed off UK labour market data. Whilst average wage growth sowed by more than expected, the unemployment level fell to its lowest level since January 1975.
Today investors will continue digesting Brexit developments. Attention could also switch briefly towards UK inflation data. Analysts are expecting consumer prices to have increased 0.2% month on month in November. This would be an improvement from October’s -0.2% decline. Core inflation is due to remain steady at 1.7%. This is still below the central bank’s 2% target.
Eurozone Inflation To Lift Euro?
The euro was broadly in favour across the previous session despite a lack of high impacting economic data. Risk appetite had been boosting the euro in the aftermath of the US — China trade dispute. However, that optimism is starting to fade given the lack of details surrounding the deal.
Today euro investors will look towards the release of German IFO business sentiment data for the bloc and particularly for Germany. Eurozone inflation numbers could also lift the common currency. Analysts are expecting inflation to have increased to 1% year on year in November, up from 0.7% the previous month. Core inflation is expected to hold steady at 1.3%. These figures are significantly short of the ECB’s 2% target, however if they show inflation starting to tick higher the euro could receive a boost.
| 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. |
