The Pound to Euro (GBP/EUR) exchange rate fell today after the Bank of England’s (BoE) Governor, Andrew Bailey, commented that Brexit could cause more damage to the British economy than Covid-19.
As a result, GBP investors have become increasingly jittery as UK-EU trade talks have failed to emerge with any certain signs of a post-Brexit trade deal.
Mr Bailey highlighted the difficulties of adjusting to a new trading relationship, saying:
‘It takes a much longer period of time for the real side of the economy to adjust to the change in openness and change in the profile of trade.’
Nonetheless, hopes of a rollout of a Covid-19 vaccine has buoyed hopes in Britain’s economy, which could recover faster than previously expected should the vaccine be rolled out in the next few months.
Until then, however, GBP traders are remaining cautious as Brexit continues to mar confidence in the nation’s economy.
The Euro (EUR) rose today following the release of the latest German GDP data for the third quarter, which revealed a stronger-than-expected growth at 8.5% quarter-on-quarter.
Consequently, demand for the single currency has increased following these hopeful signs that the Eurozone’s largest economy could be on the mend.
Analysts at Germany’s Federal Statistics Office commented:
‘This enabled the German economy to make up for a large part of the massive decline in gross domestic product caused by the coronavirus pandemic in the second quarter of 2020.’
Looking ahead, the Pound will continue to be driven by speculation over Brexit developments.
If there’s any signs of a possible UK-EU trade deal being on the horizon, then the GBP/EUR exchange rate would head higher.
However, if the Eurozone’s economy continues to show signs of recovery, then it’s unlikely we will see Sterling gain much ground on the single currency.