British Pound Sterling (GBP) Forecast Improves on Draft EU Deal Proposal

February 2, 2016 - Written by Toni Johnson

STORY LINK British Pound Sterling (GBP) Forecast Improves on Draft EU Deal Proposal

Pound Sterling Recovers from Intraday Lows on EU Deal Draft

The Pound Sterling (currency : GBP) has bounced off the intraday lows which it reached during early trading following the publication of a draft version of the deal which the European Council is offering the United Kingdom ahead of its EU in / out referendum.

The Pound was loitering in the low 1.3100s against the euro (currency : EUR) at the time that the proposal was published by European Council President Donald Tusk, but the UK unit improved to trade up to as high as 1.3247 following the release.

The upside move for Sterling came in spite of the publication of data which revealed that the overall level of joblessness in the euroland had dropped to its lowest level since the Autumn of 2011 in December, with unemployment falling to 2.73 million.

UK Vote to Remain in EU Now More Likely

Investors reacted positively to Tusk’s proposals, suggesting that they believe that a ‘remain’ vote in the upcoming EU in / out referendum is now more likely than was previously the case. Tusk set out four main areas where there is room for compromise from the EU, addressing one specific sticking point in particular, that of the UK’s ongoing commitment to paying in-work benefits to migrants from other EU nation states. Tusk noted that,

‘The social security systems of the Member States, which Union law coordinates but does not harmonise, are diversely structured and this may lead members of the workforce to be attracted to certain territories without this being a natural consequence of a well-functioning market. It is legitimate to take this situation into account and to provide, both at Union and at national level, and without creating unjustified direct or indirect discrimination, for measures avoiding or limiting flows of workers of such a scale that they have negative effects both for the Member States of origin and for the Member States of destination.’

The suggestion that the EU will give David Cameron’s Conservative government sufficient leeway on these controversial payments has convinced many analysts that the UK populace will vote to remain in the EU in the referendum which many believe may now come as soon as 23rd June. The deal will be discussed at the next EU summit, scheduled for the 18th - 19th of February. The near-term forecast for the Pound has therefore improved.

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