The GBP to EUR conversion has fallen notably lower on Thursday the 29th but we expect the pair to remain in recent ranges.
- Pound to Euro exchange rate today: 1.1556, see here for live rate.
- Euro to Pound Sterling exchange rate today: 0.8654
GBP is back below the €1.16 level at the time of writing as global stock markets sink.
Sterling remains a 'risky' currency so falls in European and US markets tends to impact on the unit in a negative way.Analysts are blaming the declines on a fresh dose of skepticism regarding the ability of OPEC to deliver on its production freezes.
Experience suggests that when two candlestick patterns occur close together they reinforce each other.
This means their already bullish individual indications are enhanced.
From a technical perspective, therefore, assuming the pair breaks above 1.1688 it will probably rise up to resistance at the sloping trend-line at 1.1735.
However, as noted in our previous analysis of the pair, it is too early to discount further declines towards 1.13.
The fundamentals support more downside too, as evidence is building that the UK government is more likely to leave the common market, than make a compromise on freedom of movement.
International Trade Secretary, Liam Fox, was reported as possibly preparing for a hard Brexit by seeking to be an independent member of the WTO.
This, according to analysts at Citibank, could be seen as, “a clear signal of preparing the ground for a “hard Brexit”, which would involve leaving the EU’s single market entirely.”
Citi also mention by way of a case study that the Swiss failed to negotiate tighter immigration controls with the EU whilst also remaining in the common market., indicating the EU will not budge on the principle of freedom on movement.
“The Swiss parliament has chosen continued access to the EU’s single market over immigration controls demanded by a 2014 referendum, after unsuccessful negotiations with the EU.
“This points to a tough EU stance and difficult negotiations ahead for the UK as well,” said Citi.
On the upside, however, sterling is supported by robust inflation expectations and economic resilience in the aftermath of the referendum, nevertheless jitters over Brexit remain an overarching concern and likely to keep a lid on sterling appreciation.
The euro has been lifted by recent data, including upbeat business sentiment data, the form of the IFO survey in Germany and PMI’s which reflected the region’s continued moderate growth.
Nevertheless, Citi see inflation expectations in the euro area subdued resulting in a likely move by the ECB to increase stimulus in December – a move which help stimulate the economy.
Set against this, however, are recent calls from ECB President Draghi for EU member state governments to use fiscal stimulus to help generate growth instead of just relying on the monetary stimulus from the ECB.
He further added that the ECB’s monetary toolkit was diminishing in terms of the impact it could make on its own.
This combined with the Bank of Japan’s recent redirection of resources at targeting the yield curve rather than purely expanding stimulus, as a means to support banks, so they could support growth, and the fact that two central bank’s share many of the same problems, may also lead the ECB to use a similar policy, which will result in less downside for the euro.