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Since the UK voted to leave the EU in 2016, the GBPEUR exchange rate has fluctuated wildly. Before the vote, markets had priced in a ‘remain’ victory, causing the value of the pound to rise as high as €1.32. However, immediately following the result, the pound experienced its largest intra-day collapse in 30 years, and it fell below €1.20.
Since then, we’ve seen the pound valued as low as 85 cents at some stages of the Brexit process. But now, analysts are optimistic that the pound can break through resistance levels and reach €1.25 once more. Here, we’ll recap recent developments in the Brexit negotiations and discuss how these have affected the GBPEUR exchange rate. But first, we’ll look at the real-world impact of fluctuating exchange rates.
The Real-World Impact of Fluctuating Exchange Rates
The fluctuating value of the pound against the euro has real-world impacts for holidaymakers, international businesses, and forex traders. This is because banks and businesses trade one currency for another for practical purposes. Equally, some investors also trade one currency for another intending to make a profit from the constantly changing prices.
For example, if the UK announces that Brexit transition talks have stalled, then the value of the pound against the euro could fall, causing those who had ‘gone long’ on the euro against the pound to profit. Similarly, this also means that those who are about to go on holiday and need to change their pounds for euros will receive far less than if they’d completed the exchange before the announcement. So, if you’re unclear on what forex trading involves and how the market operates, look for more information, such as this guide entitled ‘what is forex trading’. The forex market operates differently compared to the stock market, but many investors are turning to it as an alternative due to the currency pairings that you can choose.
Sterling to Break Through the Price Barrier?
In June 2016 alone, the pound fell in value against the euro by 7.8%. Ever since this, the pound has reached resistance levels at the €1.20 valuation. During the last four years, it has never broken free from this resistance level for an extended period. However, as the end of the transition period draws closer, analysts believe that, should a UK-EU trade deal be agreed upon, we could see a breakthrough on the cards, with GBP reaching €1.25+.
Will a Trade Agreement Cause a Rally?
The strength of the pound against the euro in the coming weeks and months will largely be determined by whether the EU and the UK finally reach a post-Brexit trade deal. Over the past few months, the value of sterling has risen against the euro whenever trade talks have progressed. By contrast, in October, the pound fell back to €1.10 after the UK held out on fresh trade talks and a ‘soft’ deadline was missed. For this reason, analysts are anticipating a sterling rally on the back of a last-minute deal.
Talks between the UK and the EU are scheduled to continue throughout December, but major stumbling blocks need to be overcome. Although both sides have confirmed that they’re committed to negotiations, the EU is worried about ensuring a level playing field for government subsidies, control over workers’ rights and environmental issues. Similarly, UK negotiators remain concerned about issues over sovereignty and fisheries. As a result, although both sides want a deal, a compromise remains elusive and no-deal remains a real possibility.
Is a Sterling Rally on the Horizon?
With both sides remaining at an impasse and Brexit talks at somewhat of a roadblock, negotiations are likely to continue right up until the end of the transition period. Due to this, during December, the pound could be left exposed and it is likely to trade at around €1.10 for the near future.
However, as support levels remain at the €1.10 mark, this indicates that the market is empathetic to the possibility of a trade deal in the coming weeks. As a result, traders will likely hold the currency as the market moves sideways. So, expect to see an upper limit established at around €1.13 and a lower limit emerge at €1.08.
Come the end of December, if a deal is agreed, this resistance level could be broken and it’s realistic to expect the pound to reach €1.27. If there isn’t a deal, a sharp fall against the euro appears inevitable.
