Since Brexit’s discussions began, financial analysts continuously shared their predictions on how it will affect the GBP exchange rate to the euro. Finally, on 1st February 2020, the act was completed, and the United Kingdom ceased to be a part of the European Union.
Since the vote took place in the UK in agreement with leaving the European Union, the pound and the euro have been in parity. To make things worse, COVID-19 and regular lockdowns have made situations worse for the UK and the rest of the European economy. The global crisis has made the markets more volatile, with the chances of interest rates becoming negative.
Follow this article to learn more about the factors that can influence these currencies separately and together. Let’s see what the analysts are talking about.
EUR/GBP Chart – EUR GBP Live Chart today price
Foreign exchange is always done with two currencies that form one currency pair. Here, our currency pair is GBP/EUR. In this pair, GBP or the Great British Pound is our base currency, and EUR or the euro is our counter or quote currency. This pair represents the relationship between these two currencies: how many euros are required to buy one pound.
GBP/EUR is a famous cross-currency pair. This is not amongst the most traded pairs such as USD/JPY, USD/CAD, AUD/USD, EUR/USD, and GBP/USD, but it is a pair that is popular despite not having USD. Many investors trade this pair to diversify their portfolio.
EURGBP forecast in 2021 is bullish
EURGBP forecast for 2021. is moderate bullish. The predicted price for the end of this year is 0.899 based on technical and fundamental analysis. The monthly RSI is above 40, which is strong support for EURGBP in the last several months. Strong resistance is 0.935 price level (March 2020. high).
EUR bullish scenario
- Political Risk – In 2021, the EU will wield its trade, investment, and industrial policies and its ability to shape global norms and standards to move toward strategic autonomy.
- EUR Growth Risks – The persistent burden from higher jobless rates to the economy of the worst damaged eurozone member states still argues for depressed interest rates in 2021, and further growth of QE (more PEPP and TLTROs)
- The ECB is expected to follow the Fed, applying symmetric principles (no cuts and no hikes) and little adjustment to an ultra-accommodative monetary policy.
- The EU will also have to finance its support in the market via the continuation of bond issuance.
- The European Commission will launch further borrowing under the SURE and NGEU instruments, aiming at investing in green and digital technologies. Digitalization is a requirement for the disbursement of grants.
GBP limited bullish
- European passport, which paved the way for automatic access to the single market and offering financial services in the EU, is now a major concern for Q1. The two sides aim to agree on a memorandum of understanding on future co-operation on financial services policy by March.
- The Brexit damage to the UK economy is done; however, it could continue adding pressure in the job market in 2021 along with the prolonged lockdowns as Covid-19 restrictions are likely to remain relatively tight both in the UK and across the Channel. Also, unemployment is set to rise further if the government’s support schemes are loosened before social distancing rules are meaningfully eased.
- Negative rates remain an option for the BoE; however, it looks likely that officials will try to avoid it.
- The government and the BoE could struggle to wean companies and markets from the support measures implemented during the crisis and reduce the debt burden that will come into sharp focus once markets start looking past the current crisis.
- Virus developments are still posing major challenges.
Factors That Can Influence EURGBP Value
The main key driver for this currency pair is sentiment. The uncertainty created by the Brexit negotiations made the sentiments volatile and pushed down the sterling value. Another factor that influenced the pair was COVID-19. The UK economy was hit harder by the pandemic than the rest of the eurozone. This made the investors nervous, and most of them were going short on GBP, selling GBP to buy for euros.
Pandemic has also forced many nations to release unprecedented stimulus. If you plan to trade this currency pair, keep an eye on the Bank of England and the European Central Bank policies related to their monetary stimulus because lower interest rates and not promising enough to invite new investments or keep the existing ones.
GCP, manufacturing activity, consumer price indices, services, unemployment, and other macroeconomic factors can prove to be indicators that can assist you in making legible predictions. It would help if you looked at these reports to assess the future of this pair in 2021.
GBP/EUR Price Analysis
In 2019, when there was an economic slowdown in the eurozone, GBP saw a rise in its price by 5% against the euro. The rise was also positively influenced by the upcoming general elections of that year which the traders were following to gain more clarity on the Brexit process. For the first time since the 2016 referendum that initiated Brexit, GBP/EUR rose to the 1.20 level.
In 2020, however, things changed, making the Forex market more volatile. In February, the GBP/EUR rates were hovering around 1.20 and plunged to 1.06 the following month because the lockdown was announced in the UK due to increased coronavirus patients’ numbers. The rates rose again to 1.14 in April but plummeted to 1.08 in September as the number of coronavirus cases began to rise again, hitting sterling and the Brexit negotiations. There were possibilities that the UK might leave without any deal by the year-end.
The expected GDP growth in August 2020 for the UK was estimated at 4.6%, but it was only 2.1% in reality. The industrial data was even weaker than expected. It saw a decline of 6.4%. Given the financial data, there were still concerns regarding the recovery of the UK economy. There were reports that Rishi Sunak, UK Chancellor, might introduce a local furlough scheme, the sentiment still seemed skeptical.
In 2020, political and economic changes were responsible for the fall of the sterling pound. In 2021, its recovery will again depend on these two factors.
Brexit Deadline and Its Effect of the Market’s Direction for GBP and EUR Forecast
Analysts refrained from passing any judgment or making any prediction before the Brexit deal was finalized. They were right in holding their opinions because this deal had a major impact on the GBP and EUR relationship.
Last year, October 15th was set as the deadline to reach an agreement with the EU, which was open for an extension given the global lockdowns and social-distancing protocols. It was important to wait for the final decision as the Bank of England’s Monetary Policy Committee or the MPC stated that it would give its next decision on interest rate once the Brexit deal is finalized, which was supposed to be 5th November 2020.
Citibank’s analysts noted in the bank’s Forex report that the key driver for GBP was the re-emergence of Brexit. The controversial and new UK Internal Market Bill was raising no-deal Brexit concerns once again. This resulted in the depreciation of the GBP. The analysts were also concerned with the rate of recovery that the UK economy was showing. It was slower than its peers. There were also speculations that the MPC might cut the rates to 0% and add £50bn QE.
A Danish investment bank, Saxo’s head, John Hardy, highlighted how high volatility is unavoidable for the sterling pound irrespective of whether the deal reaches any conclusion or not. There can be more fluctuation in the market on either side. Saxo predicted the sterling to remain on the lower side, below 1.10, if the deal doesn’t take place on time.
Canadian Bank CIBC’s analysts also believe that the pressure will remain on the sterling pound. Before the Brexit deal was finalized, they predicted that the key variables would be the number of Covid cases. Another important factor would be the new trading arrangements that would occur once the UK leaves the EU. The bank believed that the UK would need an orderly move to an all-inclusive free trade agreement.
The CIBC analysts explained that while they were still expecting the deal to be far from comprehensive given how far-fetched it had become. With the tightening of the timeline, every other heading regarding Brexit will make the pound suffer a series of whipsaws. The analysts also expected to receive asymmetrical reactions from a deal or no-deal situation. Along with the doubts regarding Brexit, the V-shaped recovery assumed by the BoE also looked challenging because of the tight lockdowns and restrictions in the movement. Whether or not the Uk goes into a second lockdown, the recovery in the service sector will be difficult.
Analysts at TD Strategies saw Brexit as a major risk in tactical terms rather than strategic terms. They saw that the UK had a narrow deal, and the terms of Brexit will be very hard. According to them, most of the damages that the actual deal could have caused were already compensated in the trade. They view the pandemic as a larger threat for the sterling pound than Brexit itself, and they were right because the economy of the UK was hit particularly hard by the lockdowns and the pandemic at large.
Talking about the pound to euro rate, Commerzbank had a slightly better outlook. It predicted the GBP would likely strengthen against the EUR in 2021. From previous year’s 1.10, it could rise to 1.12 by the end of this year. Wallet Investor also has a similar forecast for the currency pair. It predicts that the rate will remain somewhere between 1.10 – 1.12 for the remainder of the year.
The UK leaving the EU was a monumental moment. It shook many people. A change of this size never goes down without waves of aftereffects. For now, the UK economy seems to be recovering, but it is too soon to predict anything given that the world is still dealing with the pandemic. If you wish to gain from Forex without risking too much, you can invest in CFDs. CFDs or Contracts for Differences allow you to make a profit irrespective of the market direction.