The pound brushed off upbeat inflation data on Wednesday and was instead dragged lower by Brexit concerns as the EU fail to agree on a common stance for Brexit talks.
The pound to euro exchange rate touched a high of €1.2056, just shy of Tuesday’s 2-month peak, before skidding lower across the session.
GBP/EUR closed the day 0.6% lower at €1.1963, the lowest close in 5 days.
GBP/EUR: Brexit Fears Back To Haunt Pound Investors
The pound briefly spiked higher following UK inflation data. According to official data consumer prices rose 1.8% in January, a significant increase from December’s 1.3%. Whilst the rate remains below the Bank of England’s 2% target rate, the rate was comfortably above analysts’ forecasts at 1.4%.
The UK economy continues to show resilience and signs of vitality however, the pound soon shrugged off the data as investors turned their attention back to Brexit and the upcoming trade talks.
Ambassadors of the European Union failed to agree on a common EU position ahead of Brexit trade talks next month. Their failure to formalise a position could delay trade negotiations starting, pressurising an already very tight timeline and increasing the risk of the UK leaving the EU on World Trade Organisation rules. This would be a significant step down from where the UK’s current arrangement and is therefore dragging on the pound.
GFK Consumer Confidence In Focus
The euro has climbed up from its worst levels against the pound, but this was more of a pound weakness story rather than due to any fundamental euro strength. Support for the euro has been weak, as eurozone and particularly German data has continued to disappoint.
Investors have had little reason to buy into the common currency amid ongoing concerns over the health of the bloc’s economy. After Tuesday’s downbeat ZEW investor sentiment figures dragged on the euro, investors will be looking closely to see whether today’s GFK consumer confidence figures show the slowdown spilling over into the consumer area of the economy. Analysts are expecting consumer confidence to show resilience.
European Central Bank minutes from the latest monetary policy meeting will also be in focus.