GBP/EUR Exchange Rate Rises as May Hints at Transitional 'Brexit' Deal

November 21, 2016 - Written by James Fuller

STORY LINK GBP/EUR Exchange Rate Rises as May Hints at Transitional 'Brexit' Deal

The GBP/EUR exchange rate has rallied this afternoon as comments from Prime Minster Theresa May on a possible 'Brexit' deal helped to recover this morning’s losses over concerns for the UK’s Autumn Statement.

Pound Euro (GBP EUR) Exchange Rate Recovers as PM Hints at Transitional 'Brexit' Deal

The Pound Euro exchange rate recovered from a brief dip this morning following May’s speech at CBI’s annual conference, in which she hinted that the British government may try and negotiate a transitional deal when it splits from the EU, commenting;

‘Obviously as we look at the negotiation we want to get the arrangement that is going to work best for the UK and the arrangement that is going to work best for business in the UK.’

This would allow the UK to remain in the single market for a certain period of time while a new trade deal is agree upon, and will help to alleviate some of the market uncertainty that has dragged on the Pound since the referendum, something she acknowledged in her speech;

‘People don’t want a cliff edge, they want to know with some certainty how things are going to go forward. That will be part of the work that we do in terms of the negotiation that we are undertaking with the European Union.’

The remarks are likely to please investors, who fear the impact the loss of the single market will have on the UK economy.

Autumn Statement Weighs on Pound

Sterling could slip again before Wednesday, however, as markets prepare for UK Chancellor Philip Hammond’s first Autumn Statement.

In comments he made over the weekend, Hammond warned of the ‘challenge’ that the UK economy will face in ''Brexit'’. To combat this, Hammond has spoken of increasing the ‘headroom’ on public finances to give the government more breathing space to deal with the consequences of leaving the EU.

It is widely expected that this will mean that the Chancellor will abandon his predecessor’s policy to balance the deficit by 2020, instead increasing government borrowing. This is a worrying prospect for markets as the deficit is expected to become a £100 billion ‘black hole’ for the government.

GBP EUR Exchange Rate Forecast: UK Public Sector Borrowing Data to be Released Tomorrow

Tomorrow’s Public Sector borrowing figures are likely to be a catalyst for movement in the GBP/EUR exchange rate, especially as they come a day before the Autumn Statement, when the government is predicted to announce an increase in borrowing to help with 'Brexit'.

Current forecasts predict a fall in borrowing from -£10.1 billion to -£5.9 billion in October which may allow the GBP/EUR exchange rate to advance, although a surprise increase could cause the Pound to plummet.

Meanwhile the Eurozone will also release its Consumer Confidence report on Tuesday, predicted to see a modest increase from -8 to -7.8, which is unlikely to cause any notable rise in the Euro.

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TAGS: Pound Euro Forecasts