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GBP EUR Exchange Rate Slides over Concerns for Brexit Negotiations

August 7, 2017 - Written by Toni Johnson

The Pound Euro (GBP EUR) exchange rate tumbled at the start of this week’s session following reports that the UK’s Brexit negotiations ‘have not begun well’.

Brexit Negotiations Concerns Weigh on Pound (GBP)

Sterling stumbled in early trade this morning following suggestions that ‘differences’ in the UK government were placing strains on the UK’s Brexit talks with the EU.

Sir Simon Fraser, former chief mandarin at the Foreign Office voiced concerns over the start of the UK’s negotiations to leave the EU as he said that a split in the cabinet over how to handle Brexit is preventing the government from the UK from making effective progress in talks.

In an interview with BBC Radio 4 Sir Simon said;

‘The negotiations have only just begun, I don't think they have begun particularly promisingly, frankly, on the British side.’

‘We haven't put forward a lot because, as we know, there are differences within the cabinet about the sort of Brexit that we are heading for and until those differences are further resolved I think it's very difficult for us to have a clear position.’

‘I think so far we haven't put much on the table apart from something on the status of nationals, so we are a bit absent from the formal negotiation.’

This discord in the cabinet was evident in the recent confusion of the possibility of a transitional deal with the EU, with comments from Chancellor Philip Hammond about the need for a period of transition, being swiftly shot down by Trade secretary Liam Fox, would said that the UK would not seek a such a deal.

Euro (EUR) Weakened by Slump in German Factory Production

The Euro’s advance this morning was not without its own problems however as data showed that Germany’s Industrial Production unexpectedly contracted in June.

According to data published by Destatis, Germany’s factory output slumped from 1.2% to -1.1% in June, plummeting well below forecast that production would hold out at a more modest 0.2% for the month.

This was the first decline in production so far in 2017 and was largely attributed to weakened construction output over the same period, accompanied by a dip in demand for goods amongst domestic consumers.

Some analysts remain upbeat about the potential for further growth however, given the strong fundamentals behind the sector and the likelihood that output will have remained strong in the second quarter despite the downturn.

ING Economist, Carsten Brzeski said;

‘As unexpected as today’s drop in industrial production has been, the German economy is still on track to post another strong quarter.’

‘Given the sound fundamentals, a month of weaker industrial data should only be like a rain shower on hot and humid summer day: a welcome refresher.’

However not all observers are so confident in Germany’s industrial strength with some fearing that a global shift toward electric cars and the increased prevalence of ride sharing apps could have drastic consequences for Germany’s sizeable automotive industry and that this is an early sign that Europe’s largest economy may begin to slow.

GBP EUR Forecast: Germany Trade Balance to Bolster Euro?

The GBP EUR exchange rate may slide further tomorrow with the release of Germany’s latest trade figures, with analysts forecasting that the nation’s trade surplus will have risen from €22bn in June.

However another rise in Germany’s trade balance is also likely to draw more criticism that the powerhouse economy unfairly dominates trade in the Eurozone as it flood the bloc with German produced goods.

Meanwhile a lull in domestic data until the UK releases its own trade figures on Thursday may weigh on the Pound this week, with forecasts that Britain’s trade deficit will have grown at the end of the third quarter likely to prompt another slump in Sterling.

Current Interbank Exchange Rates

At the time of writing the GBP EUR exchange rate was trending around 1.1064 and the EUR GBP exchange rate was trending around 0.9036.

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