Relief as Pound-Euro Retail Exchange Rates Nudge 1.1050 for those Making International Payments.
- Easing Brexit fears allows for recovery in key Sterling-Euro exchange rate
- Pushing back of Brexit deadline helps improve mood towards Sterling
- Retail rate for international payments coaxed back above 1.10
- But gains might be short-lived argue analysts
Todays rates at Euro FX
Euro = 0.8750
Stg = 1.0950
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A sudden mid-week surge in the value of Sterling relative to the Euro offers a rare piece of respite for UK businesses and individuals with international payment commitments as the retail rate nudes above the psychologically important 1.10 level.
The spot inter-bank market mid-price leapt above the 1.11 marker for the first time in days - taking the retail price firmly back above 1.10 - in the wake of a trifecta of positive Brexit developments:
1) EU negotiator Michel Barnier says the EU is preparing to offer a partnership with Britain such has never been with any third country
2) UK negotiator Dominic Raab says talks are 80% complete, and
3) both sides have agreed to push the deadline back into November from the initial October European Council summit deadline.
The jump in value of the British Pound also comes in line with our predictions for such a recovery made on Wednesday morning, hours before all the Brexit-related news broke.
We observed that the Pound-to-Euro exchange rate was oversold and rarely goes more than four days in row without making a gain.
Analyst Trevor Charsley with foreign exchange brokers AFEX added to our confidence saying he saw the potential for a temporary turnaround at the 1.10 level where a barrage of buy orders were nesting.
The recent decline in the spot exchange rate below 1.10 appears to have coaxed more participants into the market who liked the discount Sterling was offering, allowing for a technical recovery to form.
Better Exchange Rates for the Retail Market
The British Pound's rally has meanwhile pulled the broader retail market higher.
Retail supply of Euros from banks and brokers is typically offered at lower rates than the interbank market owing to a margin attached by providers from which they derive profit.
High-street banks are now seen offering the GBP/EUR in a 1.0738-1.0815 bracket while independent providers are offering tighter spreads and supplying in the 1.1027-1.1071 bracket.
Can further advances be expected, or is this as good as it gets?
Jens Peter Sørensen at Danske Bank is sceptical on the ability of the current move to extend too far warning, "the political risk premium on the GBP is likely to remain high in the coming weeks and given the current softness in the USD, it too early to call the top in EUR/GBP yet, in our view."
"Political news related to Brexit is likely to remain a key source of volatility and directional for the GBP near term," adds the analyst.
Following Sterling's jump, Joshua Mahony, Market Analyst at IG, warns that the market could be getting a little too far ahead of itself.
"Unfortunately, while we are seeing some significant improvement in market sentiment after this announcement, there is feeling that we have seen this all before. Almost all the preceding ‘breakthroughs’ have been swiftly proven to be a false dawn, and thus while we are seeing the pound spike higher, there is certain to be some hesitancy until we see a more consistently positive tone from the EU," says Mahony in a briefing following the Barnier comments.
It appears Sterling sellers are indeed set for a period of relief, but the warnings we are hearing from market specialists is that this situation might not persist.