March 7, 2018 - Written by David Woodsmith
STORY LINK GBP to EUR Exchange Rate Fluctuates Near Three-Month-Low on Post-Brexit Trade Uncertainties
Market concerns about a disagreement between the UK and EU on Brexit negotiation stances weighed heavily on the British Pound to Euro (GBP/ER) exchange rate on Wednesday, but the pair held above its worst weekly levels despite this.
So far this week, mixed demand for the Pound and a lack of reasons to buy the Euro has left GBP/EUR largely fluctuating. The pair opened on Monday at the level of 1.1205 and has since fluctuated between a high of 1.1252 and a three-month-low of 1.1190.
GBP Rebounds From Lows Despite EU’s Rejection of UK Brexit Stances
The Pound saw mixed movement throughout Wednesday’s session as the British currency was driven by market concerns and speculation over whether the UK and EU will agree to a solid post-Brexit trade deal.
Earlier in Wednesday trade, the Pound was weakened by an EU draft of negotiation guidelines, sent by European Council President Donald Tusk to officials including EU chief negotiator Michel Barnier.
The draft indicated that the EU rejected Britain’s plans for an in-depth and unique UK-EU relationship post-Brexit.
In a speech later in the day, Tusk clarified by saying that as the UK government does not want to be a member of the EU customs union or single market, the UK will not be able to pick certain EU benefits. He said;
‘No member state is free to pick only those sectors of the single market it likes, nor to accept the role of the ECJ only when it suits their interests.
By the same token, a pick-and-mix approach for a non-member state is out of the question.
We are not going to sacrifice these principles. It is simply not in our interests.’
However, before markets closed Sterling was supported slightly by a more optimistic speech from UK Chancellor Philip Hammond. Hammond argued that the EU would not get what it wants from the UK either under a typical EU free trade deal.
Hammond attempted to ease concerns by saying the EU was an experienced and skilled negotiator and its strict stance was unsurprising but not offputting. He said;
‘And it does not surprise me remotely that what they’ve set out this morning is a very tough position. That’s what any competent, skilled, experienced negotiator would do.
I expect that we will have a deep and constructive engagement with them and I hope that what I’ve set out here this afternoon will contribute to the discussion that we will be having.’
Due to market focus on Brexit developments and uncertainties, the Pound has been largely uninfluenced by UK data and Bank of England (BoE)
EUR Fluctuates on Lack of Sturdy Support
Investors have had little domestic reason to buy the Euro in recent sessions, and market anxiety about Italian political uncertainty and Thursday’s European Central Bank (ECB) policy decision made investors hesitant to keep buying the shared currency.
Wednesday saw the publication of the Eurozone’s third Q4 2017 Gross Domestic Product (GDP) projections, which met expectations and slowed from 0.7% to 0.6% quarter-on-quarter.
While the yearly figure came in at 2.7% as expected, the previous figure was revised lower from 2.8% to 2.7%. This was slightly disappointing to investors but overall the data indicated that the Eurozone had seen its best growth rate in over a decade throughout 2017.
Italy’s 2018 general election ended in a hung parliament this week amid a surge in popularity for populist parties. This fresh political uncertainty is keeping the Euro under pressure.
On top of this, persistent concerns that the US may spark a ‘trade war’ (and that the EU may retaliate) has left investors looking for ‘safe haven’ currencies again, weakening the Euro.
GBP/EUR Forecast: Political Developments and European Central Bank (ECB) in Focus
Brexit developments are likely to remain in focus for Pound traders for the remainder of the week, as UK ecostats are unlikely to be hugely influential.
UK trade data and production data from January will be published on Friday, but market uncertainty surrounding UK and EU disagreements on Brexit issues could keep pressure on Sterling even if these stats impress.
The EU summit at which an agreement on the UK-EU transitional period is anticipated to be reached will be held later in the month. Until then, stances and developments from the UK and EU on other issues could continue to drive Sterling.
Of course, Thursday’s session will see the European Central Bank (ECB)
hold its highly anticipated March policy decision too.
While the ECB is not expected to make any changes to monetary policy, any signs of a shift in tone from the bank, or comments on recent events like Italy’s election or US protectionist rhetoric, will likely inspire Euro movement towards the end of the week.
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TAGS: Pound Euro Forecasts