- EUR GBP Slides on May Comments – Sentiment improved as Britain may avoid ‘hard Brexit’.
- Draghi Speaks at EU Parliament – Reaffirms commitment to economic stimulus package.
- UK Public Sector Borrowing – Pound not supported by better than expected report.
- Eurozone Consumer Confidence – Euro may rally if data impresses.
The EUR GBP exchange rate plummeted to a new six-week low yesterday as the UK Prime Minster Theresa May hinted that the UK government will seek a transitional agreement with the EU after ‘Brexit’.
Euro Pound (EUR GBP) Slides as UK Government will likely Seek Transitional Deal
The Pound (GBP) rallied against the Euro (EUR) on Monday following a speech by Theresa May at the annual CBI conference, in which she said that the UK government would work towards avoiding a ‘cliff edge’ for British businesses after ‘Brexit’. The PM stated that;
‘Obviously, as we look at the negotiation we want to get the arrangement that is going to work best for the UK and the arrangement that is going to work best for business in the UK.’
To achieve this the PM indicated that the UK may arrange a transitional deal with the EU so that Britain could retain access to the single market for a set period of time, while a new trade agreement is formed.
The news was welcomed by investors as it helped to clear up some of the uncertainty that surrounds ‘Brexit’ as well as reducing fears of what would happen to the UK economy if Britain were to suddenly lose access to the single market after the two year negotiation period of ‘Brexit’.
ECB Commitment to Monetary Easing Weakens Euro
The Euro was also weakened by European Central Bank President Mario Draghi’s speech at the European Parliament yesterday, as he remained committed to ultra-low interest rates and the need for continued monetary easing, saying that;
‘We remain committed to preserving the very substantial degree of monetary accommodation necessary to secure a sustained convergence of inflation towards levels below, but close to, 2% over the medium term.’
Market reacted negatively to the speech as it indicated that the ECB’s current quantitative easing programme would be likely to be extended past March 2017, when it was originally planned to end.
Pound Weakens despite Below-Forecast UK Borrowing
Sterling has failed to hold recent gains, however, despite today’s Public Sector Borrowing figures showing a significant drop from £9.2billion to £4.3billion in October, beating expectations that it would only drop to £6.0billion.
This should be positive news for the UK Chancellor Philip Hammond as he prepares to deliver his first autumn statement tomorrow which is widely expected to show a £100billion ‘black hole’ in the public sector deficit as the Chancellor seeks to increase public spending to help cope with the ‘challenge’ of ‘Brexit’. However, markets are worried that the rate of borrowing is still significantly above what was forecast and that the UK’s national debt continues to rise even further from its already worrying levels.
EUR GBP Exchange Rate Forecast: Eurozone Consumer Confidence Scheduled for Later Today
The EUR GBP exchange rate may extend gains later today with the release of the Eurozone Consumer Confidence report in the afternoon. Markets currently predict that it will see a modest from -8 to -7.6 in November, but a more impressive rise could allow the Euro to mount even more of a recovery against the Pound.
With the UK having already released its data for the day investors will begin to focus on tomorrow’s autumn statement which could cause some volatility in EUR GBP as Hammond is likely to move away from his predecessor’s policy of balancing the deficit by 2020 to allow for greater financial freedom to help with ‘Brexit’.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.85 and the GBP EUR exchange rate was trending around 1.16.