The pound dropped 2% lower versus the euro across the previous week. The pound euro exchange rate hit a high of €1.2064 before closing the session at €1.1738, having given back all of its post-election gains. The pound is pushing higher verses the euro at the start of the Christmas holiday shortened week; a week in which low trading volumes are expected to be low
The pound dived at the beginning of last week after the newly elected Prime Minister Boris Johnson put a no deal Brexit firmly back on the table. Boris Johnson’s Withdrawal bill was voted through the House of Commons with a comfortable majority. However, Boris Johnson brought back the possibility of a cliff edge no deal Brexit by legislating a deadline of December 2020 for the UK — EU transition period.
By enshrining in legislation, the end of the transition period, Boris Johnson has made his government’s position clear. Businesses can either expected a limited trade deal in goods with the European Union from January 1st, 2021, or the possibility of no deal at all.
The pound stabilised towards the end of the last week after better than forecast inflation data and a more hawkish than forecast Bank of England. Despite two policy makers voting for a rate cut, the central bank was more upbeat over the outlook for global economy.
Brexit developments will continue to dominate ahead of Christmas. Further signs that the UK could be heading towards a cliff edge no trade deal Brexit after December 2020 could weaken the pound further.
Trade Headlines In Focus
The Euro rose versus the pound as investors eyed tentative signs that the euro zone economy and particularly the German economy were starting to bottom out. Whilst PMI data was broadly disappointing, IFO business sentiment figure for December beat analysts’ forecasts, rising from 95.1 to 96.3, whilst the forward looking IFO business expectations rose to 93.8. Stronger business morale is considered a key leading indicator and a sign that the manufacturing crisis in Europe’s largest economy could be stabilising.
US — China trade developments were also in focus last week, with phase one trade deal optimism boosting the common currency. This week the euro will continue to be driven by trade headlines. Signs that the US and China are close to signing the agreed deal would boost hopes of a recovery in the trade reliant German economy.
|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.