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GBP EUR Exchange Rate Stumbles Amid Carillion Collapse

January 15, 2018 - Written by David Woodsmith

Carillion Collapse Prompts GBP/EUR Exchange Rate Fall

The Pound Euro (GBP/EUR) exchange rate pared some of its recent gains on Monday as markets responded to news that UK construction giant Carillion has gone into liquidation, potentially threatening thousands of jobs.

The news came after talks between the firm, various lenders and the government failed, effectively sounding the death knell for the UK’s 2nd largest construction company.

Beyond endangering the thousands of jobs at Carillion, the employment and stability of the firm’s suppliers has also come into question, with unpaid invoices liable to cause a wide scope of problems.

Aditya Chakrabortty, Senior Economics Commentator warned about this possible impact, stating:

‘This is a firm that employs just under 20,000 workers in Britain and the same again abroad. It has a huge chain of suppliers – and its habit of going in for joint ventures with other construction businesses means that a collapse at Carillion would send shockwaves through the industry and through the government’s public works programme’.

The market response for the Pound has thus far been quite minimal, however, with last week’s reports that Spain and the Netherlands might be willing to back a soft Brexit deal still helping to keep things afloat.

EUR Exchange Rates Climb on Eurozone Trade Surplus Growth

Euro (EUR) exchange rates benefitted some upbeat trade data today, with the bloc’s November balance of trade surplus growing to EUR 26.3 billion in November, up from EUR 23.8 billion in the same month, previous year and beating the forecast fall to EUR 22.4 billion.

This marked the largest Euro Area trade surplus since March, with exports rising 7.7% and imports increasing at a slower rate of 7.3% - all in spite of the current high value of the Euro.

In other, slightly worse news for the Euro, various Senior Social Democrats (SPD) have criticised the form of a potential coalition deal with German Chancellor Angela Merkel’s Christian Democratic Union (CDU).

Berlin’s Mayor and leading Social Democrat, Michael Müller, has stated that he is highly critical of the new grand coalition, asserting that agreements continue to fall short on variables like immigration, housing and health insurance.

It should also be stressed, however, that the SPD’s entry into further, more in-depth talks is dependent on support being gathered at the party convention on the 21st of January – leaving the possibility of failure still a tangible threat.

Any possibility that coalition talks could be thrown into jeopardy threatens another election within Germany - a possibility that investors fear due to the accompanying uncertainty that will likely follow.

GBP/EUR Exchange Rate Forecast: Volatility Likely on UK Inflation Figures

The Pound Euro (GBP/EUR) Exchange rate could become increasingly volatile tomorrow depending on the result of the UK’s December consumer price index figures (CPI).

Markets currently forecast that the UK’s core CPI reading will dip from 2.7% previous, to 2.6%, whilst the headline CPI figure will similarly fall from 3.1%, to 3.0%.

Such a fall will still place the UK’s inflation rate within the Bank of England’s (BoE) target range, but a more drastic drop could curb expectations for tighter monetary policy measures into 2019.

For the Euro Area, markets will be anticipating Wednesday’s release of the December bloc CPI figures, with the core reading expected to remain steady at 0.9% - significantly below the bank’s target range.

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