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EU Warns New Trade Deal Could Take up to 10 Years EUR GBP Exchange Rate Ticks Higher

  • EUR GBP Rises Over Trade Concerns – Markets worry UK government has under estimated the time it will take to form a new trade agreement with the EU.
  • Euro Rises following Eurozone data – CPI data shows rise in inflation while French business confidence also improves.
  • UK GDP Report Released Next Week – Pound may climb if growth rises in line with expectations.

The EUR GBP exchange rate rallied yesterday as the Pound was battered by the report that the UK faces 10 years of trade negotiations after ‘Brexit’.

Euro Pound (EUR GBP) Rises as UK Faces the Possibility of 10 years of Trade Negotiations

The Pound plummeted on Thursday following the revelation that the UK’s ambassador to the European Union, Sir Ivan Rogers, had privately warned the government that negotiations to create a new trade agreement with the EU could last up to 10 years.

The ambassador also warned that any potential deal could also be setback during the ratification process if it was rejected by any of the 27 national parliaments that make up the EU.

The reports directly contrasts recent comments from members of the government, such as Brexit Secretary David Davis, who believes all trade negotiations could be wrapped up in the two years following the triggering of Article 50, as he said;

‘It seems to me that it will be perfectly possible to know what the endgame will be in two years.’

The report will likely weigh heavily on Sterling as investors key concern over ‘Brexit’ is the uncertainty that surrounds it and 10 years of trade negotiations would cast doubts over the UK economy for far longer than first thought.

Euro Bolstered by Upbeat CPI Data

The Euro has been further strengthened by the Eurozone’s latest Consumer Price Index as it indicated that Eurozone inflation ticked slightly higher in November, rising from 0.5% to 0.6% to reach its highest levels since April 2014.

While this is still short of the 2.0% inflation target set by the European Central Bank (ECB) the continued uptrend in the in inflation rate helped to boost market confidence.

Meanwhile the single currency was also strengthened by a better than expected French Business Confidence report as figures jumped from 102 to 106 in December, beating predictions that it would only rise to 104, reaching its highest levels since July 2011. This lead to HSBC economist Olivier Vigna predicting higher growth in France during the fourth quarter.

‘The upwards trend witnessed in the survey bodes well for the increase we anticipate for GDP over the last quarter of 2016 as we forecast +0.4% quarter-over-quarter after two consecutive weak quarters.’

EUR USD Exchange Rate Forecast: Britain to release GDP Report Next Week

With little data left to be released during this week’s session, investors are likely to look forward to notable releases next week.

The EUR GBP exchange rate may fall next week as the UK’s final GDP report for the year is predicted to show growth rose from 2.1% to 2.3% in the third quarter.

In the Eurozone investors are likely to focus on the latest Gfk Confidence Survey for Germany on Friday, which may cause the Euro to slide if it drops from 9.8 to 9.6 as expected, although a surprise rise would likely allow EUR GBP to strengthen.

Current Interbank Exchange Rates

At the time of writing the EUR/GBP exchange rate was trending around 0.84 and the GBP/EUR exchange rate was trending around 1.19.