GBP/EUR Climbs on Hopes Theresa May can Break Brexit Deadlock in Brussels

November 17, 2017 - Written by Toni Johnson

STORY LINK GBP/EUR Climbs on Hopes Theresa May can Break Brexit Deadlock in Brussels

Hopes of progress in the Brexit negotiations today are boosting the British Pound against the Euro, with the latter currency weakened by another display of caution from the Eurozone’s chief central banker.

The GBP/EUR exchange rate has been able to record gains of -0.2% so far this morning, which takes the pairing up to 1.1231.

GBP Rises as Theresa May Heads to Brussels for Brexit Talks with EU Leaders

The Pound is on the rise this morning due to market hopes for a constructive outcome from Prime Minister Theresa May’s trip to Brussels to meet with EU officials.

May will be discussing the stalled Brexit negotiations with EU leaders and is rumoured to be considering upping the offer originally made for a divorce settlement in order to entice leaders to allow negotiations to move on to the topic of trade.

EU officials have been firm that talks on trade – expected to begin in December – will not start until the UK has settled its more pressing obligations; primarily the cost of the divorce and the UK’s financial commitments to the bloc.

Estimates for the divorce bill vary wildly, with the top end of forecasts being in the region of €100 billion – a sum Theresa May is highly unlikely to agree to, given the huge political backlash she would receive from Brexit supporters within her Cabinet if she did.

However, markets are confident that May’s intervention will go a long way towards getting talks restarted, allowing key decisions to be made in December.

Characteristic Caution from ECB President Draghi Weighs on EUR

Although cold risk appetite is supporting the Euro higher against the commodity currencies today, elsewhere the common currency is falling.

European Central Bank (ECB) President Mario Draghi has proved suitably cautious in his latest speech, preventing EUR from finding much support.

Draghi began positively, by citing the strength of the Eurozone’s economic recovery and the rebound in the labour market.

He said; ‘The euro area is in the midst of a solid economic expansion. GDP has risen for 18 straight quarters, with the latest data and surveys pointing to unabated growth momentum in the period ahead.’

‘From the ECB’s perspective, we have increasing confidence that the recovery is robust and that this momentum will continue going forward.’

However, he added the significant caveat that the Eurozone’s economy is still heavily reliant upon the monetary stimulus provided by the Governing Council.

Draghi commented; ‘We are not yet at a point where the recovery of inflation can be self-sustained without our accommodative policy.’

‘An ample degree of monetary stimulus remains necessary for underlying inflation pressures to build up and support headline inflation over the medium term.’

GBP/EUR Forecast to Weaken if ECB’s Weidmann Gives Hawkish Policy Outlook

There is no UK data set for release today, meaning that the bulk of Pound Sterling movement is likely to be caused by rumours on the side-lines of Theresa May’s meeting with EU officials in Brussels.

The Pound will be supported higher if the Prime Minister increases her offer for the divorce settlement to the European Union, as this may be sufficient to break the deadlock and pave the way for talks on trade beginning in December.

If May attempts to hold her ground, the Pound will sink, as the EU seems unlikely to budge on the issue; however, signs of contrition from Brussels would also improve appetite for Sterling.

Meanwhile, the day’s Eurozone data has already been published, but the Euro could see some volatility later after a speech from European Central Bank (ECB) official Jens Weidmann.

As Bundesbank Chief, Weidmann has long been hawkish on the monetary policy outlook, claiming that the ECB’s ultra-loose stimulus package is slowing the pace of economic growth in Germany, despite the country having benefitted from rock-bottom funding costs thanks to the influx of cheap money into the system.

His speech today could therefore see him boost the Euro with claims that the ECB should aim to exit quantitative easing sooner than currently expected, or that the bank could raise interest rates before the asset purchasing programme is finished.

If Weidmann is fairly middle-of-the-road with his comments, however, the Euro may find little additional cause for movement.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts