Updated October 28 2019: GBP jumps in mid october on news of a fresh withdrawal agreement with the EU. Reaching near multi-month highs at 1.16. GBP remains constant until current time however officially, Britain is still set to leave the EU on October 31st with no deal until the extension impasse is broken and the EU agrees to a 31st January extension (something they only said they would do if there was a considerable development in the UK such as a general election).
Updated August 12 2019: Pound hits new two year low against EUR, reachling 1.065 at its lowest. Amid political uncertainty and a continuation in the fears of a no deal brexit.
Updated Dec 5 2018: The GBPEUR climbed to the top of its normal range against the Euro based on hopes for an EU exit agreement, but then instantly went back to 1.12 based on political concerns that the parliament won’t pass the agreement and PM May will have to resign.
Updated August 2018: GBPEUR is trading lower in the region of 1.11 to 1.12 based on growing concerns that a Brexit deal will not take place before the due date. We share this concern
Updated April 27 2018: The GBPEUR range has kept within the same range of 1.12 to 1.17 over the first quarter of 2018 and beyond it. Pound is showing no signs of recovery at that time.
Future Prospects and Predictions – Pounds Vs. Euro
Money Transfer Comparison’s authors and editors do not have a positive outlook for the UK after its decision to leave the EU. In essence, the UK is gaining nothing from exiting the EU right now (it may benefit from its ability to strike moe personalised trade deals in the long term), but its trade will certainly suffer in the immediate term We still don’t know to what extent Brexit will impact the UK – because first and foremost we still don’t know if indeed the withdrawal agreement will actually be passed by the UK and the EU.. There does appear to be a route forward now – the UK calls a general election – the EU then agrees to a Brexit extension – the UK government gains a bigger working majority in the House of Commons and can then pass the withdrawal agreement. Even this though could all come undone at any moment – a tory scandal in the run up to an election, or other parties beating the odds.
We must also understand that this divorce bill (currently set to run until the end of 2020) doesn’t paint a clearer picture on the future of the UK and the EU’s trading relationship at all. It simply helps to protect both states should there be no deal. A no deal would still be possible at the end of 2020 but a very different no deal to what we see now which is the UK and EU crashing out on WTO terms with no mechanism to protect a bilateral agreement on security, health, citizens’ rights and trading terms.
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Historical Overview: Sterling’s demise against the Euro
Sterling has been able to hold its position against the Euro for much of the period since 1999 with overvaluation in comparison with the German economy offset by the fact that the Euro had been persistently dragged lower by weakness in other key countries. Sterling, however, hit fresh multi-year lows in 2019 as Brexit fears have undermined confidence in the UK outlook. Lows not seen for GBP this severe since the end of the 2009 financial crisis.
2019 Onwards – Brexit Impasse and UK political uncertainty
The pound started steady in 2019 as the market maintained hope the brexit withdrawal agreement could be passed. Theresa May taking this for a vote in the House of Commons no less than three times, hoping that with its new found support from the DUP it could be pushed through. But with a number of conservatives voting against the government they couldn’t get close to the required majority. By historical standards some of the foundations of the UK economy appeared strong too, unemployment was below 4% and Q1 GDP was at 0.5%. This however slowed to 0.2% in Q2 and unemployment is reported to have risen throughout the year.
In the hope it would help to push through a withdrawal agreement, Theresa May resigned and Boris Johnson was elected as the new prime minister. However with this only increasing the chances of a no deal GBP hit new lows against EUR, not seen since the end of the financial crisis in 2009. Taking the GBPEUR rate as low as 1.07.
After fresh lows in August 2019, the pound began to recover as parliament continued to search for ways to block a no deal brexit and the government increased its negotiations with the EU, seeking to reach a new withdrawal agreement that would replace the Irish backstop. Since mid October GBPEUR has sat over 1.15.
Jan 2 2017 onwards: Euro recovery
Overall Sterling sentiment continued to weaken in 2017 with the UK government’s inability to secure a majority in the General Election increasing fears of instability and also making it even more difficult to secure a satisfactory outcome to the Brexit negotiations. In 2018, the GBPEUR stayed within the range of 1.10-1.15. The closer it got to the end of the year, the lower the rate was based on concern of a “no deal Brexit” leaving the UK economy volatile and vulnerable. There was a slight recovery in November 2018 based on rumors the EU and the UK reached an agreement..
Selling pressure on Sterling was intensified by a strong Euro recovery as stronger growth rates triggered expectations of an ECB move to tighten monetary policy.
June 23rd 2016 – 2017: Brexit represents another UK shock
The relative balance of forces changed substantially following the June 23rd UK referendum on whether to remain in the EU.
There had been very limited expectations that the UK could vote to exit the EU and the leave result triggered a substantial market shock.
There were increased fears surrounding the long-term UK outlook with concerns that underlying growth rates would be substantially weaker over the medium term.
The Bank of England also cut interest rates once again to 0.25% which undermined Sterling confidence. The inconclusive June 2017 election increased fears over political instability and there were expectations of difficult negotiations with the EU.
2014 – June 22nd 2016: Euro weakness dominates
During this period, there were further concerns surrounding the Euro-zone outlook as governments and the ECB were unable to find a permanent solution to the crisis. The debt crisis continued to flare-up with another bailout for Greece while the Euro was trapped in permanent low growth with further speculation that the Euro would break up.
As confidence in the Euro-zone and Euro continued to weaken, ECB President Draghi announced that he would do whatever it takes to protect the Euro. Draghi was successful in preventing a break-up of the Euro area.
The ECB, however, was forced to cut interest rates very aggressively in an attempt to meet its inflation target and ease financial tensions. The move to zero interest rates and a negative deposit rate, together with the quantitative easing programme, pushed the Euro sharply lower against all major currencies. Sterling was, therefore, able to make headway as EUR/GBP retreated to the 0.7000 area despite very low UK interest rates.
2011 – 2014: UK recovery, Euro-zone crisis
The UK economy gradually emerged from recession with a return to growth and there was a steady recovery in the banking sector.
At the same time as a gradual UK recovery, confidence in the Euro-zone outlook deteriorated sharply.
The Euro-zone had been pushed into recession during the global banking crisis and, although fears surrounding the banking sector were slower to emerge, fears escalated during this period.
The Greek debt crisis also emerged for the first time in 2010 with the Euro-zone members effectively forced to bailout Greece in order to prevent a serious collapse within the Euro-zone banking sector.
Governments found it very difficult to control the debt crisis and the Euro-zone as a whole lurched from crisis to crisis with persistent fears over a sovereign debt crisis.
The tables were, therefore, turned in global currency markets with the Euro under sustained selling pressure while there was a net recovery in Sterling with EUR/GBP declining to the 0.8000 area.
2008 – 2011: global financial crisis, UK banks badly damaged
The first real evidence of the great financial crisis emerged in August 2017 with redemptions halted in two property funds.
The immediate UK impact was limited, but stresses quickly emerged in the money markets as wholesale lending started to seize up. Given that there had been an increased dependence on money-market lending by UK financial institutions, confidence in the sector quickly declined and financial difficulties emerged.
The initial focus was on Northern Rock which requested government support in November 2017. The crisis intensified rapidly in early 2008 with Northern Rock nationalised. The UK suffered a wider banking-sector crisis as Lloyds Bank and the Royal Bank of Scotland required government support to avoid collapse.
The banking crisis was an important factor in pushing the UK economy into a deep recession and the Bank of England was forced to cut interest rates very aggressively to stabilise financial conditions.
Although the banking crisis was a global feature, the UK banking crisis was a key factor in triggering heavy selling pressure on Sterling as EUR/GBP peaked at record highs around 0.9800.
2003 – 2007: the great moderation, false UK optimism
At the time, the period between 2003 and 2008 was marked by an optimistic period for the UK economy. Under the Blair government, government finances were boosted by strength in tax revenue and deficits appeared to be under control in historic terms.
The Bank of England Monetary Policy Committee remained successful in controlling inflation which held close to the 2% target and there were no serious concerns surrounding the balance of payments. Overall GDP growth also maintained a firm tone which helped underpin Sterling sentiment.
With hindsight, the macro-economic policy framework was building up excessive debt amid lax regulation and compounded by excessive global debt expansion, although these concerns were relatively limited at the time.
Jan 1st 1999 – 2003: Euro teething troubles
The Bank of England was granted independence to set interest rates following the 1997 general election and by the time of the Euro’s introduction in 1999, the framework was well established.
The Euro was unable to make headway following its 1999 launch and the single currency weakened sharply to lows below 0.8500 against the dollar in 2000 with an underlying lack of confidence in cohesion for the new currency. EUR/GBP hit a low below 0.5700 in early 2000.
Sterling was able to recover after the 2008 financial crisis as Euro-zone fears dominated, but has now