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GBP EUR Exchange Rate Tight as Brexit Talks Begin

June 19, 2017 - Written by Toni Johnson

The Pound’s latest appreciation against the Euro comes on the first day of full Brexit talks.

Pound Rises on Strong Start to Brexit Talks

The main cause of a Pound to Euro rise today has been the news that Brexit negotiations have finally begun.

The official meeting between David Davis from the UK and Michel Barnier from the EU has come nearly a year after the initial Brexit vote, but is still being welcomed by traders.

Offering a positive outlook has been UK Foreign Secretary Boris Johnson;

‘Obviously this is the first day of the talks on Brexit and I think the most important thing is we should all start. There’ll be lots of discussions about the nature of the deal we are going to do, but I think we should also enter on the discussion about money and so forth. I think the most important think about us now is for us to look to the horizon. [To] the deep and special partnership that we want to build with our friends’.

On the one hand, this news has been beneficial, as it shows that the UK’s Brexit team is committed to getting on with difficult negotiations. On the other, however, it has highlighted the disparity between the UK’s domestic and foreign abilities.

Overseas, Brexit talks are beginning on time and getting off to a positive start. At home, more than a week after the general election concluded the Conservatives have still not reached an agreement with the Democratic Unionist Party (DUP) over a formal coalition.

The process of uniting the two parties into an effective government has been repeatedly stalled since the June 9th results day. As well as the Grenfell tower disaster delaying a possible deal, the two parties have also struggled over the issue of Northern Irish impartiality.

The latter issue has become increasingly prominent in recent days. The main question has been whether the government can remain neutral in Northern Ireland affairs, despite being clearly united with one of the main Northern Irish parties.

Euro Uncertainty Persists after Record Low Turnout for French Election

The Euro’s failure to advance against the Pound today has been caused by a mixed reception to the latest French election news.

Sunday concluded the second round of voting for the French parliamentary elections, which brought a clear majority for President Emmanuel Macron.

Although Macron-supporting parties gained the most seats, the positive effect of the news was limited.

This was because voter turnout was around 43%, a historic low in France’s history. The high rate of abstention was partly blamed on disagreements with some of Macron’s labour reform policies.

Another reason was suspected to be voter fatigue, with the two rounds of parliamentary voting coming shortly after the Presidential election in May.

Commenting on Macron’s mixed victory was Etiennne Lefebvre, Editor-in-Chief at Les Echos;

‘[Macron] now has his majority, beyond all his hopes. Undoubtedly that will make his task easier, but it'll also increase expectation’.

Offering a more optimistic forecast on the Macron’s prospects has been Professor of French and European Politics Philippe Marliere;

‘What Macron is doing is appealing to the right wing of the Socialists and also to the centre right; that's really about creating something new. Normally, you don't put together these two sides’.

More clearly positive Eurozone news was that construction output remained high in April, posting 3.2% year-on-year.

Pound to Euro Forecast: GBP could Break Stalemate on UK Trade Deficit Reduction

The Pound may be able to make a more noticeable advance against the Euro on Wednesday, when UK government borrowing stats come out. Forecasts are for a deficit reduction in May, from April’s -9.65bn figure down to -7bn.

Such a result could raise the Pound, as it would indicate that the UK is moving closer to the ever-elusive surplus range.

From the Eurozone, upcoming high-impact data will include the Spanish trade balance on Tuesday, along with a consumer confidence flash later in the week. In the latter case, the confidence index is expected to improve in June, from -3.3 points to -3.

Such an outcome could raise the Euro against the Pound, ahead of high-impact PMI results over Friday.
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