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Euro Pound Exchange Rate Edges Higher as Brexit Trade Talks Potentially Pushed to February

  • Euro Pound Exchange Rate Tests 0.88 – Edges higher from weekend’s 0.87
  • Sterling Outlook Weighed by Brexit Uncertainty – Could trade talks be put off til February?
  • EUR Forecast: European Central Bank on Thursday – As well as Markit’s Eurozone PMIs
  • GBP Forecast: UK Inflation in Focus – Brexit news could cause Sterling volatility

The Euro Pound exchange rate has edged higher since markets opened this week, despite last week’s news that the UK and EU had reached an agreement on the first phase of Brexit negotiations. Concerns that UK-EU trade talks could still be delayed have left the Pound volatile.

EUR GBP slipped slightly from 0.8830 to 0.8794 last week after briefly touching a six-month-low of 0.8695. On Monday morning the pair tested the level of 0.88 again, but a lack of demand for the Euro limited the pair’s gains.

Euro (EUR) Strength Limited on Mixed Eurozone Data

The shared currency was supported slightly on Monday by comments from European Central Bank (ECB) supervisory chief Daniele Nouy.

Nouy told a Portuguese newspaper that mergers and acquisitions within the Eurozone were likely to accelerate due to the bloc’s strong economic growth. The business-positive news made Euro traders slightly more hawkish.

Still, recent Eurozone ecostats have been unable to help support the strong Euro and keep it near its best levels.

Last week’s final November Eurozone PMIs from Markit met projections in services and composite prints.

While these datasets continued to indicate that the Eurozone economy was performing strongly in late-2017, the data didn’t surprise investors and had little impact on Euro trade.

However, the Eurozone’s October retail sales results were highly disappointing, contracting at -1.1% month-on-month and slumping from 4% to just 0.4% year-on-year. The Eurozone retail PMI for November did improve though, from 51.1 to 52.4.

Thursday saw the publication of the Eurozone’s third Q3 Gross Domestic Product (GDP) projections, which actually beat expectations slightly year-on-year and came in at 2.6% – which did support the Euro slightly.

On the other hand though, Germany’s October trade surplus unexpectedly narrowed from €24.1b to €18.9b when it came in on Friday. This caused some late week weakness in Euro trade and prevented it from capitalising against the Pound’s volatility.

Pound (GBP) Fails to Capitalise on Perceived Brexit Deal

Investors overlooked UK data last week, as Brexit news dominated headlines and the British Pound became highly volatile amid days of ‘will they, won’t they’.

Towards the beginning of the week, Sterling plunged due to news that Northern Ireland’s DUP Party had blocked an agreement on the first phase of Brexit negotiations, due to disagreements over how the Ireland to Northern Ireland border would be handled.

Later in the week, the UK and EU came together once more in effort to reach a deal on the Brexit divorce process – and this time it was a perceived success.

The Pound surged on Thursday as investors became hopeful that the deal would soon be formally agreed and that it would unlock key UK-EU trade talks in early 2018.

However, Sterling quickly shed most of its Thursday gains on Friday due to reports that even if the first phase deal succeeds, the UK and EU still may not be able to begin trade negotiations until February at the earliest.

Due to concerns about trade talks beginning just over a year before the UK is set to leave the EU, the Pound became unappealing and Euro Pound exchange rate was able to recover from its multi-month-lows.

Euro Pound Exchange Rate Forecast: Central Bank News This Week

With the Brexit process potentially not seeing any further major developments until as late as February 2018, the Euro Pound exchange rate is likely to be more focused on economic news again for the rest of the year.

Of course, news about the timing of the second phase of Brexit negotiations is still likely to have a major impact on Pound movement, especially if talks are pushed to earlier than February for example.

This week will see the publication of major Eurozone and UK data, as well as monetary policy decisions from both the European Central Bank (ECB) and the Bank of England (BoE) on Thursday.

ZEW’s Eurozone economic sentiment surveys for December will be published on Tuesday, followed by Germany’s final November inflation report on Wednesday and Markit’s December PMI projections for the Eurozone on Thursday.

UK data will be influential too, with Britain’s November Consumer Price Index (CPI) report due to come in on Tuesday.

UK inflation is forecast to have remained at a high 3% year-on-year in November, but if the figure comes in below expectations it will dampen hawkish investors hoping for tighter monetary policy from the Bank of England (BoE) in 2018.

EUR GBP Interbank Rate

At the time of writing this article, the Euro Pound exchange rate trended in the region of 08815. The Pound to Euro exchange rate traded at around 1.1340.