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EUR to GBP Exchange Rate Edges Higher as Brexit Border Concerns Dent Sterling

November 28, 2017 - Written by James Fuller

The latest concerns about the ongoing Brexit process have once again gripped Euro to British Pound exchange rate traders, with investors now increasingly concerned about disagreements about the border between Northern Ireland and Ireland. The Euro has largely held its ground.

After advancing slightly from 0.8922 to 0.8946 last week, EUR GBP has trended within a much narrower region this week so far. The pair briefly slipped to a low of 0.8923 but generally trends near the week’s opening levels.

EUR Remains Steady despite German Political Uncertainties


Over the last week, news about German coalition talks have hit headlines as it emerged German Chancellor Angela Merkel had failed to form a new government with the business-friendly FDP Party.

While markets became more hopeful on Monday that Merkel could instead form another ‘grand coalition’ with the SPD Party, talks are reportedly unlikely to begin until the New Year.

The SPD Party initially indicated it would not take part in another ‘grand coalition’ as it did with the previous government, out of fear that it would lose its position as Germany’s primary opposition party.

However, many analysts believe that another coalition between the SPD and Merkel’s CDU party would be the best outcome for markets. It would represent a familiar status quo and would leave far less near-term uncertainty than a minority government or a snap election.

Still, with formal talks unlikely to begin until the New Year, there is still major political uncertainty ahead in the Eurozone’s biggest economy.

Overall though, investors continue to find the Euro appealing despite the political concerns. This is largely due to the Eurozone bloc’s increasingly optimistic economic outlook.
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While inflation has not yet improved enough to support tighter monetary policy from the European Central Bank (ECB), core inflation is slowly rising and growth is expected to remain strong for the time being.

Analyst confidence in the bloc’s economy has overall improved significantly over the past year. According to Pascal Blanque from Amundi;

‘We are enjoying, and it's likely to stay moving into next year, a cyclical sweet spot with a broadening of the recovery across the Euro zone including Italy and with an important component coming from internal demand,’


GBP Weighed by Irish Border Concerns


The Pound has been unable to advance against the Euro in recent sessions despite market anticipation for progress in Brexit negotiations, as fresh obstacles continue to hit headlines.

While the UK government reportedly upped the amount it was willing to pay towards the UK-EU ‘divorce bill’ as a major concession, the EU is now unimpressed with Britain’s proposals for the Northern Ireland to Ireland border post-Brexit.

The EU has given the UK government a 4th December deadline to improve its offer on the Irish border and as a result, markets are becoming more uncertain about all the delays to Brexit negotiations and how it will affect the Brexit process overall.

If negotiations continue to be delayed, concerns will worsen that trade talks will begin too late or fail, potentially leading to a ‘hard Brexit’.

While concerns about Ireland facing a snap election soon have lightened slightly, investors remain concerned about the slow pace of Brexit negotiations.

EUR/GBP Forecast: Eurozone Inflation Stats Ahead


With German political news potentially taking a backseat until the New Year, the Euro to Pound exchange rate is more likely to be influenced by upcoming key Eurozone data as well as Brexit news.

A slew of notable Eurozone ecostats will be published throughout Wednesday’s session, including November Consumer Price Index (CPI) projections from Spain and Germany. Q3 growth projections for France will be published too.

On top of this, key consumer confidence and business confidence stats from November will be published from The Netherlands, Spain, Greece and the Eurozone overall.

Even more key data will follow on Thursday, including French, Italian and Eurozone inflation projections, as well as job market data from Germany and the Eurozone as a whole.

As for Sterling, any developments in Brexit news, especially regarding the Irish border, has the potential to influence Sterling as the EU’s 4 December deadline approaches.
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