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GBP EUR Exchange Rate Update: Pound at 7-Year Low as Brexit Fears Hit Home

August 11, 2017 - Written by Tim Boyer

The lack of GBP EUR movement today comes as the Pound to Euro rate nears its lowest level since March 2010.

GBP Heading Down as Slow Data Day Raises Trader Concerns

The lack of confidence seen in the Pound today is largely a symptom of deep-rooted Brexit concerns. With no direct UK data to refer to, traders have instead been focusing on the apparently poor state of Brexit talks thus far.

According to some UK officials, the UK team in Brexit negotiations has been denied drinking water and smart watches, seemingly showing a breakdown in relations between the two sides.

In the words of an anonymous UK civil servant;

‘The most significant bit of feedback to emerge from the slightly combative early meetings is perhaps the most elemental one. Water. Or to be precise, the lack of it.

This was clearly not a perfectly understandable oversight, but a piece of outright treachery’.

UK officials have also seemingly been forbidden from wearing smart watches, as this could supposedly facilitate the leaking of information during or after talks.

Other Brexit headlines of late have been more mixed, with news coming that Theresa May wishes for a Brexit ‘charm offensive’. This would effectively take the form of a mass-promotion of the UK’s objectives in Brexit talks, to improve clarity in the UK and overseas.

When talks officially started, a lack of specifics was one of the criticisms made by EU officials including Chief Brexit Negotiator Michel Barnier.

On the more negative side, a former aide of UK Brexit negotiator David Davis has blasted the idea of Brexit, calling it a ‘calamity for our country’.

James Chapman, who left the government before the 2017 general election, has gone so far as to suggest a new political party, which is explicitly anti-Brexit in outlook.

Claiming that cabinet ministers are interested in forming an anti-Brexit party known as the Democrats, Chapman has once again highlighted the issue of deep divisions within the governing Conservative-Democratic Unionist Party.

These signs of continued Brexit tensions during the parliamentary recess have lowered the Pound’s value, as they may point to a worsening once the government officially resumes operations in early September.

Euro Rudderless as Mixed Inflation Figures Concern Traders

Although German inflation rose in July, this failed to inspire a Euro to Pound rally. The increase in July’s German inflation stats was as forecast, but elsewhere prices made negative movements.

This was especially true in the case of Spain, which reported a moderate drop in inflation on the month in July, for base and harmonised readings.

Higher inflation in the Eurozone is generally a reason to expect European Central Bank (ECB) interest rate hikes, but a lack of consistency conversely lowers the chances of a rate hike.

GBP EUR Weekly Outlook: Pound Turbulence Possible on UK Jobs Data

The main event for Pound traders next week will be Tuesday and Wednesday’s inflation and jobs figures.

In the former case, inflation is tipped to rise in July, on both the month and the year. Higher inflation could inspire a brief Pound rally, as it would put more pressure on the Bank of England (BoE) to raise interest rates.

Any GBP EUR gains may prove short-lived, however, as Wednesday’s jobs data could trigger a sharp GBP devaluation.

Average earnings are set to slow in June, further below the current rate of inflation. This would intensify the current wage squeeze felt by UK consumers, potentially leading to less retail activity in the future.

In this line, retail sales are tipped to slow on Thursday, which could emphasise the tough conditions faced by UK consumers at present.

Next week will be busy for the Eurozone, but the first data to watch out for will be Monday’s industrial production stats. Production is anticipated to slow in June, which could set the Euro off to a bad start against the Pound.

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