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GBP/EUR Exchange Rate Under Pressure as Brexit Concerns Grow

February 27, 2018 - Written by John Cameron

The Pound Euro (GBP/EUR) exchange rate is edging slightly lower this afternoon as the shadow of Brexit continues to hang over the UK currency.

Pound (GBP) Pressured by Brexit Uncertainty



Sterling sentiment came under pressure during today’s session as growing Brexit Uncertainty once again began to drag on the UK currency.

GBP investors remain wary this week ahead of the publications of the EU’s draft Brexit withdrawal treaty on Wednesday.

The document is expected to formalise the terms agreed by the UK and EU in December regarding the UK’s withdrawal agreement.

Likely most damaging for the Pound however will be the reports that the draft will ignore some of Theresa May’s requests regarding a transitional period immediately after Brexit.

Markets are likely to be particularly unsettled by reports suggesting that the EU will not have included May’s proposals for the transitional period to be of flexible length.

The PM also risk facing the ire of the DUP over the document as well as it is thought that it will contain no promises to ensure there is no customs border between Northern Ireland and the UK.

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On top of this markets are also bracing for key speech by May on Friday in which she is expected to outline her government’s Brexit trade proposals.

It is predicted that the speech will outline her plans for pulling out of the EU customs union in order for the UK to forge trade deals with other nations while also attempt to form an ambitious new trade with the EU.

However her critics are suggested that the PM’s shunning of the customs union could jeopardise any chances of the UK securing a meaningful trade deal with the EU post-Brexit.

Former Trade minister Sir Martin Donnelly said;

‘You’re giving up a three-course meal, the depth and intensity of our trade relationship across the European Union and partners now, for the promise of a packet of crisps in the future.

‘If we manage to do trade deals in the future outside the EU, [these] aren’t going to compensate for what we’re giving up’.

Euro (EUR) Weakened by Downturn in German Inflation



At the same time the Euro’s attempts to advance this afternoon have been kept in check by the release of Germany’s latest Consumer Price Index (CPI).

According to Germany’s Federal Statistics Office, Destatis, Germany’s latest CPI figures revealed that inflation sank from 1.6% to 1.4%, falling below a more modest dip to 1.5% that had been forecast and striking its lowest levels since November 2016.

Much to the chagrin of investors this slide in prices pressures also comes despite a robust economic upswing, with rising wages, low unemployment and considerable monetary stimulus from the European Central Bank (ECB).

This drop in inflation is unlikely to be welcomed by the ECB either, with the bank currently targeting an interest rate of 2%, and could see the bank choose to extend its bond buying programme if it feels that inflation is failing to move in the correct direction.

GBP/EUR Forecast: Wider Eurozone Inflation to Slide as Well?



Looking ahead the GBP/EUR exchange rate may be able to find some gains on Wednesday as the CPI reading for the wider Eurozone is published.

Economists forecast that these figures will show that inflation pressure retreated across the entirety of the bloc in February, with headline inflation expected to dip from 1.3% to 1.2%.

Meanwhile outside the increased concerns over Brexit the Pound could face some pressure later this week as the UK publishes is latest PMI figures.

The latest factory PMI may be particularly damaging for Sterling this week as analysts predict that activity in the UK’s manufacturing sector may have slowed again in February.

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