The euro has traded lower against the pound for the third consecutive day, extending its reversal from last week’s highs right above 0.9000, to session lows sub-0.8950. The Euro fell lower yesterday on reports that the European Union could face a no way out, after Hungary and Poland vetoed the EU’s seven-year Covid-19 recovery package.
The pair has been weighed by a somewhat stronger GBP amid higher hopes of a Brexit deal.
The pound saw gains across all pairs on Tuesday after the newspaper The Sun reported that UK chief negotiator, David Frost, said to Boris Johnson that he expects the trade deal to be agreed by “early next week.”
Investor’s excitement, however, has been put off by another report by Reuters reassuring that Prime Minister Johnson has warned his top ministers the Brexit deal has a long way to go. These comments have kept a leash on GBP bears.
Looking further than Brexit, the Rabobank FX Analysis Team sees little hope on any relevant GBP rally in the mid-term: “The disarray within the Tory party suggests that Johnson may not hold on to his position for the duration of the current electoral term. This means that even when Brexit is in the rearview mirror, UK politics are still likely to be messy. We are forecasting EUR/GBP at 0.89 in a 3-month view and 0.88 in 6 months. However, the political outlook that is emerging in the UK suggests that these predictions may prove optimistic for the pound.”
Pound traders will be awaiting tomorrow’s release of October’s UK Core Consumer Price Index.
Any signs of a struggling British economy would drag down the GBP/EUR exchange rate.
If the outlook for the Eurozone’s economy continues to deteriorate following complications over the EU Covid-19 stimulus package, then the GBP/EUR exchange rate could head higher.
The Euro Pound is expected to be volatile all week due to a new deal news and our view is neutral and ranging between 0.8950 and 0.9000 but even testing the 0.8900 level on the downside.
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