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GBP EUR Exchange Rate Volatility Prompted by Further Brexit Uncertainty

The Pound Euro (GBP EUR) exchange rate slipped again this morning on fears the UK government is already looking to alter the Brexit agreement struck last week.

Pound (GBP) Dips as Davis Clashes with Ireland

Sterling sentiment is on the decline again at the start of this week’s session as markets react nervously to clashes between David Davis and the Irish government.

The Brexit secretary angered Dublin over the weekend after claiming that the recent Brexit deal regarding the Irish border was more of a ‘statement of intent’, suggesting that that the agreement could still be altered.

This follows a letter written by Theresa May to Tory MP’s last week which suggested that there may be some flexibility in the Brexit deal as it read ‘nothing is agreed until everything is agreed.’

Dublin was not willing to take this lying down however as it warned that ‘both Ireland and the EU will be holding the UK to the phase one agreement.’

Markets fear that any reneging on the part of the UK government over parts of the deal struck last week could derail trade talks, especially after the Chief EU Brexit Negotiator, Michel Barnier announced last week that trade discussions would begin at the earliest in February and only if May provided more clarity on the UK’s plans.

Some analysts have now even gone for far as to compare the Pound to the volatility seen in emerging currencies, with Jim Leaviss, at Prudential Plc’s M&G Investments tweeting that ‘The Great British Pound now trades like an emerging market currency’ after a Bloomberg table showed that Sterling is the eighth most volatile major currency.

Euro (EUR) Weakened by Italian Retail Sales

Meanwhile the Euro’s gains this morning have been trimmed by the release of the some disappointing retail figures from Italy.

According to data published by Italy’s national statistics agency, Italian retail sales growth contracted sharply in October, falling from 0.8% to -1%, falling well below the more modest expectations of a drop to -0.1% and its largest decline in over a year.

GBP EUR Forecast: UK Inflation to hold at Five-Year High?

Looking ahead the GBP EUR exchange rate could be prompted to slide even further tomorrow with the release of the UK’s latest CPI figures, with economists forecasting that inflation will have held at a five-year high of 3% in November.

While strong inflation is usually welcomed by investors, with the Bank of England (BoE) unlikely to raise interest rates anytime in the near future investors are likely to be concerned about the financial pressure the soaring inflation rate in placing on UK consumers.

However possibly helping to offset any Sterling weakness will be the publication of Germany’s latest economic sentiment survey on Tuesday morning, with a forecast dip in sentiment likely to drag on the Euro.

Current Interbank Exchange Rates

At the time of writing the GBP EUR exchange rate was trending around 1.1348 and the EUR GBP exchange rate was trending around 0.8813.