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GBP EUR Exchange Rate Plummets as Brexit Trade Talks are Delayed Until March

December 15, 2017 - Written by John Cameron

The Pound Euro (GBP EUR) exchange rate plummeted on Friday as markets reacted to news from Brussels that Brexit trade talks will likely be delayed until March 2018 – a delay that will leave UK businesses in the dark for even longer.

GBP EUR Exchange Rate Falls Despite Narrowing of Eurozone Trade Surplus

The Euro maintained its lead over the Pound on Friday despite the Bloc having suffered some disappointing news of its own.

The Eurozone recorded a significant narrowing in its trade surplus year-on-year in October, as markets expecting growth of EUR 24.6 billion were surprised by a drop from EUR 19.2 billion to EUR 18.9 billion – the lowest surplus recorded in three months.

In other news, Thursday’s European Central Bank (ECB) rate meeting resulted in two important revelations; the first being the ECB’s updated growth forecast - which now reflects a faster rate of growth - and the second being the inflation forecast, which is expected to remain below the bank’s 2% target, even in 2020.

The bank did, however, assert that they are ‘ready to increase the asset purchase program in terms of size and/or duration’, if need be.

As a result, the single currency was largely unperturbed by this news.

Pound Sterling (GBP) Plummets as Brexit Trade Talks get Delayed until March 2018

The Pound plummeted on Friday despite news that EU leaders have agreed that ‘sufficient progress’ has been made to progress talks onto ‘phase 2’, with markets concerned that trade talks will only be able to begin in March next year.

This delay means that UK businesses will have to make important investment decisions for 2018 mostly from a position of ignorance, with very little clarity, if any, available regarding the UK’s trade relationship with the EU in the years ahead.

Instead, transitionary talks will take precedence, with the UK looking to eliminate the possibility of a ‘cliff-edge’ Brexit, whilst also maintaining its ability to begin trade talks with other countries (like the US) during an extended 2 year period.

GBP EUR Forecast: Euro Could Slip Depending on Upcoming Inflation Release

Next week could see the GBP EUR claw back some of its losses depending on the outcome of the Eurozone’s inflation release.

Consumer prices are currently expected to rise from 1.4% to 1.5%, on Monday, but given the latest ECB forecast anything less than a rise will be a disappointment.

Beyond this, markets will be following the public finances release and the public sector borrowing figures - both due for release on Thursday for the United Kingdom – and the UK’s GDP release, due on Friday.

If these disappoint then the Euro could extend its lead even longer, particularly if very little progress is demonstrated on the subject of transitionary talks.

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