Pound to Euro Exchange Rate
Pound to Euro Exchange Rate

Yesterday saw the pound to euro exchange rate fall

But then swiftly climb again as Theresa May signed a letter delivered to European Council President Donald Tusk to start the official Brexit process.

The pound reached highs of £1 to €1.159 as Mr Tusk made a conciliatory speech after he had received the letter triggering Article 50.

However, the pound’s value against the euro continued to move swiftly throughout the day, and sterling is likely to remain volatile over the coming weeks and months as Brexit negotiations get underway.

Pound to Euro Exchange Rate
Pound to Euro Exchange Rate

Paresh Davdra, CEO and co-founder of RationalFX, said: “The pound has shown considerable fluctuations in the aftermath of the triggering of Article 50.

According to Viraj Patel, a foreign exchange strategist with ING in London, the matrix of potential outcomes in upcoming Brexit negotiations advocate for a weaker currency.

“The red lines drawn in the draft EU proposal have raised the odds of political stalemate in the early phase of Brexit negotiations,” says Patel.

“The trick for investors will be to wade through the political noise. We do not see any fundamental reason for a ‘sell the rumour, buy the fact’ type of reaction from GBP.”
Patel reckons the recent hawkish Bank of England re-pricing and cleaner GBP positioning means that downside risks have increased and it won’t take much bad news for GBP to jolt lower.

“Arguably, we may have already seen the start of this bearish realignment given that GBP weakened after the Scottish Parliament backed the call for SNP leader Nicola Sturgeon to request a second independence referendum (which could be made to Westminster this week),” says Patel.

ING’s attention will be focused on any news that sheds light on whether the UK is on course for a hard or soft Brexit.

Current GBP levels are not in our view pricing in the tail risk of a ‘cliff edge’ Brexit – an automatic default to WTO rules – especially given talk from both sides in recent months over the need for a transition deal,” says Patel.

Patel’s views are echoed elsewhere in the institutional analyst community with the likes of Standard Chartered and Deutsche Bank saying recently that the Pound faces significant downside as markets have been far too sanguine on the risks facing Sterling of late.
Should EU officials place greater initial focus on factors like the Divorce Bill and demote the need for a smooth transitional deal  then ING would expect GBP to react negatively.

He Pound rode a wave of volatility in the mid-week trading session following the UK’s triggering of Article 50 in Brussels.

Pound to Euro Exchange Rate
Pound to Euro Exchange Rate

The currency walked into the day on the back foot but this weakness soon gave way to a recovery as both May and the President of the European Council, Donald Tusk, issued concilliatory statements in the aftermath of the triggering.

The British Pound had gone as low as 1.1445 against the Euro and 1.2375 against the Dollar as nerves dominated ahead of official start of the UK’s exit from the European Union.
Volatility was to be expected as savvy traders take exposure to Sterling off the table ahead of any potential volatility that might arise from the opening stages of the UK’s Brexit negotiating process.

But the recovery following the triggering of Article 50 suggests markets are waiting to hear more details from the UK and EU on the next steps forward before making big directional decisions.

“The Pound fell against the Euro early on ‘Article 50 Day’ but quickly unwound most of the losses as images flashed across the wires of Theresa May signing the letter.

Another kneejerk plunge in Sterling after Article 50 is triggered is clearly possible, but seems unlikely,” says Jasper Lawler, an analyst with London Capital Group.

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