Currency Update from Currencies Direct - Costa Del Sol

  • Pound remains buoyant against the euro in spite of rough seas

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    In what seems to be a ‘Groundhog Day’ type scenario, the pound has been rising and falling in reaction to various Brexit-related comments and soundbites over the past couple of weeks. The more or less continuous back-and-forth between EU and UK policymakers and political commentators has seen Starling whipsawed higher and lower from one day to the next.

    Over in the Eurozone, poor sentiment has had the effect of frustrating moves by the euro to capitalise on the pound’s vulnerability, as worries about the bloc’s exposure to the financial drama unfolding in the Turkish lira continues to unnerve investors.

    Taken together, these factors have seen the GBP/EUR exchange rate trade between €1.12 and €1.09 over the last four weeks.

    What’s been happening?

    During the first half of September the pound has faced considerable headwinds and stormy seas from fears over there being a ‘no-deal’ Brexit. Sterling had already sunk to an eleven-month low at the end of August when the prime minister, Theresa May, said that leaving the EU without a deal ‘Would not be the end of the world.’

    Since then, however, sentiment has been riding a wave, with the Pound suffering several knockbacks but always coming out higher. One of these boosts came from an unlikely source – the EU’s chief negotiator Michel Barnier – who suggested that the EU would form an ‘unprecedented relationship’ with the UK and that a Brexit deal could be finalised by November. The Frenchman’s words certainly contributed to the pound’s rally in September.

    Away from Brexit talk, UK economic data has been somewhat mixed, adding to the volatility seen in Sterling in recent weeks. With each new rise in sentiment, GBP exchange rates seem to then be undermined by the next release of weak data.

    The euro too has faced some volatility since the start of September, partly due to worries about European banks being exposed to Turkey’s currency crisis, and partly due to ongoing fears that the US will spark a trade war with China which the Eurozone will inevitable be drawn into.

    Further adding to the euro’s woes has been the release of plenty of sub-par economic date, with indications that the Eurozone is struggling with growth and inflation adding to the stack of reasons investors are hesitant to change their money into euros.

    What do you need to look out for?

    It’s probably no surprise that Brexit developments will continue to influence pound movement over the coming days and weeks, with focus falling on whether leaders will be able to strike a deal at an emergency summit due to be held in November.

    All indications are that the euro will continue to keep its head above water over the next month against the pound, with any fresh growth downgrades or weak data likely to be seen as proof that the economy of the currency bloc is hitting the rocks.

    Beyond that, and new developments in the US induced trade spat with China, as well as fears that contagion from the so-called emerging markets could spread to European banks, will keep investors on their toes over the next few weeks.

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