Pound euro exchange rate retreats following BoE no-deal Brexit warning

The pound softened yesterday as markets reacted to the Bank of England’s (BoE) dire warnings on the consequences of a no-deal Brexit.

Sterling remains on the defensive this morning, with GBP/EUR sliding to €1.1235, GBP/USD slipping to $1.2782 and GBP/CAD retreating to C$1.6977, while GBP/AUD and GBP/NZD both tumble, striking AU$1.7472 and NZ$1.8609 respectively.

Looking ahead, Germany’s economy is likely to be in the spotlight today, with the euro poised to fall if German inflation or employment figures signal that Europe’s largest economy continued to slow in the fourth quarter.

What’s been happening?                                             
         
The pound appreciated through much of yesterday’s session as investors positioned themselves ahead of the Bank of England’s analysis of Theresa May’s Brexit deal.

However Sterling sentiment sank following the report as BoE Governor Mark Carney warned that a no-deal Brexit could result in the worst crash since the Great Depression.

With the risks of a no-deal Brexit appearing increasingly likely as Theresa May struggles to convince MPs on the merits of her withdrawal deal, it was not surprising to see GBP exchange rates move sharply lower on Wednesday evening.

This saw the GBP/EUR exchange rate relinquish all of its gains on Wednesday after the pairing initially strengthened amid concerns Europe’s automotive industry could be damaged by potential US tariffs on car exports.

Meanwhile the GBP/USD exchange rate was still able to surge higher yesterday evening as USD investors were left disappointed following a speech by Federal Reserve Chair Jerome Powell as he hinted US interest rates will not rise as fast as anticipated next year.

What’s coming up?

A slew of German data is likely to place the euro in focus today as markets remain wary regarding the Eurozone’s largest economy after a shock contraction in GDP in the third quarter.

This is likely to see EUR exchange rates retreat if either Germany’s inflation or unemployment figures indicate that its economic activity is continuing to slow throughout the last quarter of the year.

Meanwhile the publication of the minutes from the Fed’s November policy meeting may strengthen the US dollar this evening if policymakers sound hawkish regarding further rate hikes.

Finally, GBP investors will only have the latest UK mortgage figures to mull over today, likely resulting in Brexit remaining under the microscope for most traders.