GBP to EUR Exchange Rate Strengthens as EU Negotiators Offer Hope on Brexit

October 13, 2017 - Written by Minesh Chaudhari

STORY LINK GBP to EUR Exchange Rate Strengthens as EU Negotiators Offer Hope on Brexit

Hopes that the EU would cooperate with Britain for a post Brexit transitional deal and even hints of trade talks have left the British Pound to Euro exchange rate more appealing on Friday. However, uncertainty remains and has kept the Pound away from its best levels.

After opening the week at the level of 1.1138, GBP/EUR tumbled to a low of 1.1074 on Thursday before surging back up to a high of 1.1259 on Friday morning. At the time of writing the pair was still holding its ground above the level of 1.12.

GBP Supported by Hopes of Brexit Progress

Brexit news has once again dominated headlines in recent sessions and have caused huge fluctuations in Pound trade due to the rapidly shifting market impressions of negotiations.

Sterling plunged on Thursday, as EU chief negotiator Michel Barnier worsened market concerns by stating that Brexit negotiations remained in a ‘deadlock’.

However, the Pound quickly recovered overnight as Barnier indicated the EU would be willing to work with Britain on granting a post-Brexit transitionary period, to help ease the nation into life without the EU.

GBP/EUR briefly jumped even higher as Barnier noted the EU was preparing for trade-related negotiations too.

Still, the pair fell from its best levels as Brexit negotiations did indeed remain in a deadlock.

It has been known for some time that the EU was willing to take on more trade talks once more pressing matters like the divorce bill had been settled – but the divorce bill remains a significant obstacle.

On Friday morning, European Commission President Jean-Claude Juncker reasserted that Britain must commit to paying its dues before negotiations can proceed. He stated;

‘We cannot find for the time being a real compromise as far as the remaining financial commitments of the UK are concerned. As we are not able to do this we will not be able to say in the European Council in October that now we can move to the second phase of negotiations,

They have to pay, they have to pay, not in an impossible way. I‘m not in a revenge mood. I‘m not hating the British.’

Sterling remained volatile and was unable to hold its highs, as too many uncertainties remained about the British side of Brexit negotiations.

EUR Pressures Lighten

The Euro has more successfully kept GBP/EUR away from its highs in recent sessions, as political concerns in the Eurozone have lightened and shared currency traders remain optimistic on the European Central Bank (ECB) outlook.

Since Tuesday evening, concerns about Catalonia’s ongoing independence debate have eased, as Catalonia leader Carles Puigdemont appears more eager for negotiation than to outright attempt to declare independence.

Meanwhile, Spanish Prime Minister Mariano Rajoy has indicated he could activate Article 155 of Spain’s constitution and give Spain direct power over the region of Catalonia if necessary.

While there are concerns that tensions between Spain and the separatists could remain high, markets are more confident that in the long-term, Catalonia is not likely to break away and become legally independent.

Due to the political relief, investors have largely shrugged off cautious comments from ECB President Mario Draghi.

Draghi indicated on Thursday afternoon that the ECB was likely to leave Eurozone interest rates frozen for an extended period of time, even after quantitative easing (QE) has been withdrawn.

GBP/EUR Forecast: UK Inflation Data Ahead

Brexit news could continue to have an impact on Pound trade in the coming days, but Bank of England (BoE) speculation is likely to flare up again as the latest UK inflation and wage stats will be published too.

Tuesday will see the publication of September’s UK Consumer Price Index (CPI) results. If UK inflation beats expectations, the BoE would be under even more pressure to tighten UK monetary policy to put a lid on inflation.

Wednesday will follow with August’s labour market report, including unemployment rate and wage growth results.

The BoE has been concerned about Britain’s wages in recent months, so if the wage growth results are better-than-expected BoE interest rate hike bets will rise and Sterling will strengthen.

As for the Euro, ZEW economic sentiment surveys and September inflation stats will be published on Tuesday which could influence movement in the shared currency.

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TAGS: Pound Euro Forecasts