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Brexit Warning From US Banks Weighs Heavily on Pound Euro Exchange Rate

News that major US banks could soon start to implement their hard Brexit contingency plans naturally spooked investors, weighing heavily on the Pound.

JP Morgan and Goldman Sachs, among others, are reportedly planning to begin relocating jobs back to the US and other European capitals unless there is greater clarity on Brexit in the near future.

This puts additional pressure on the UK government to make some tangible progress and get the second phase of talks underway before the end of the year.

However, with UK and EU negotiators still seeming at odds over key issues, including the size of the so-called divorce bill, market hopes for such progress are relatively limited.

Worries over the potential negative impact of persistent Brexit-based uncertainty are likely to keep the Pound Euro exchange rate under pressure in the near term.

Even so, Friday’s raft of UK production and trade data could still offer Sterling a rallying point ahead of the weekend.

A solid increase in industrial or manufacturing output may encourage confidence in the underlying health of the UK economy, even as Brexit continues to loom large over the domestic outlook.

Focus will also fall on the NIESR gross domestic product estimate for the three months to October, which could point towards a sustained uptick in growth after a sluggish start to the year.

Dovish ECB Outlook Limits EUR Exchange Rate Potential

Tuesday’s raft of disappointing Eurozone retail PMIs kept the Euro on a generally softer footing, with consumer spending showing signs of slowing.

As Phil Smith, Principal Economist at IHS Markit, noted of the German PMI:

‘The retail sector’s performance dipped at the start of the fourth quarter, as the PMI showed monthly like-for-like sales growth easing to the lowest since July. And there was also bad news for retailers in terms of costs, which rose sharply during the month to add to the squeeze on margins.’

This is likely to encourage the European Central Bank (ECB) to maintain its relatively dovish policy outlook for the foreseeable future, limiting the upside potential of the single currency.

If tomorrow’s ECB Economic Bulletin underlines this cautious approach then the GBP EUR exchange rate could find renewed support.

However, September’s German trade data may encourage the Euro to return to a bullish trend if the surplus widens on the month.

So long as the Eurozone’s powerhouse economy continues to demonstrate solid signs of growth this is likely to keep a floor under EUR exchange rates.

Current GBP EUR Interbank Exchange Rates

At the time of writing, the Pound Euro exchange rate was slumped in the region of 1.1327. Meanwhile, the Euro Pound exchange rate was making gains at 0.8826.