Pound Weakens Against Euro Amid Concerns Surrounding Post-Brexit UK

• Even though retail sales and consumer confidence increased in the month of January, the pound-euro exchange rate still took a dip of 0.3%.
• Experts believe concerns surrounding the post-Brexit UK are too great to be subdued by an increase in business activity.

On Thursday, the exchange rate between the pound and the euro took a dip of 0.3%, reaching €1.191 even though retail sales in the UK picked up in the month of January after showing a weak trend in 2019. Consumer spending also increased last month by 0.9% compared to December.

According to Berenberg Kallum Pickering, an economist, this data does not provide sufficient evidence to indicate that the UK economy would be experiencing sustained gains throughout this year, as the uncertainty surrounding the post-Brexit UK is still paramount.

However, Samual Tombs, another economist, has provided a more optimistic picture, indicating that the growth trends reported in January provide enough evidence of the impact that the December’s elections have had in the UK of reducing the economic pressure that had built up due to an uncertain business environment.

But, this has not affected the Sterling as much due to ongoing concerns about the outcome of the trade negotiations between the UK and the EU, especially since David Frost, who is the UK’s Chief negotiator for Brexit, said that alignment with the bloc was not part of his agenda. Also, it has been indicated by Stefaan De Rynck, who is a senior advisor to the chief negotiator of Brexit for the EU, that upcoming trade negotiations could become somewhat difficult.

Hence, opposing forces are acting on the pound-euro exchange rate, and so it has remained stable so far.

The Euro had already suffered a setback after Germany had released its GfK Consumer Confidence Survey which had shown stagnation in the sentiment held by consumers. According to Rolf Bürkl, who is a consumer expert at GfK, one of the factors that have definitely contributed to the decline in consumer sentiment compared to the previous month has been the onset of the coronavirus.

Any impact of the coronavirus in the Chinese markets has an impact on producers operating in Germany and may cause many such producers to entirely pause their production if supply is not fully resumed from Chinese manufacturers.

However, experts forecast that such gains in the currency are likely to rollback considering the speculation that surrounds the policy meeting to be held by the European Central Bank in March.