GBP/EUR has extended its gains in early trading Monday, though it still is trading below election levels. Currently, one British pound buys 1.1709 euro, up 0.20% as of 6:00 AM UTC.
The pound started to strengthen on the eve of Christmas Day, as markets shifted their focus from no-deal Brexit fears. More than two weeks ago, UK Prime Minister Boris Johnson said that he wouldn’t allow an extension of the Brexit transition period, currently set for December 2020. The amended Withdrawal Agreement Bill (WAB) was already voted on Friday, December 20.
The sterling has gained confidence against the euro as investors hope that Johnson will change his mind and will give up the tight timeline for the transition period. European Commissioner Phil Hogan recently said that he believed Johnson would abandon his promise not to extend the transition period. He told The Irish Times:
“In the past, we saw the way the prime minister promised to die in the ditch rather than extend the deadline for Brexit, only for him to do just that. I don’t believe prime minister Johnson will die in the ditch over the timeline for the future relationship either.”
The commissioner described the UK government’s decision to make any extension attempt illegal as “very odd,” referring to the move as a political “stunt.”
Last Friday, European Commission President Ursula von der Leyen said Johnson should reconsider his stance. She expressed “serious concern” about the feasibility of limiting the timeline of the negotiations on a “free trade deal and many other subjects.” She told the French newspaper Les Echos:
“I am very concerned about how little time we have. It seems to me that, on both sides, we should seriously consider whether the negotiations are feasible in such a short time.”
“I think it would be reasonable to take stock in the middle of the year and if necessary, agree on an extension to the transition period,” the European official added.
Elsewhere, the euro is under pressure after European Central Bank (ECB) official Robert Holzmann suggested that it was unlikely that the bank would raise interest rates back into positive levels next year.