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GBP EUR Strengthens; PM Claims UK Will Strongly Advocate Free Trade and Free Markets

Theresa May’s long-awaited Brexit speech initially boosted GBP EUR as the Prime Minister set out her objectives for the Brexit negotiations, but the Pound’s gains weren’t fated to last.

The SNP has long argued that it would fight for the right to a second Scottish Independence referendum if the government gave up access to the single market as part of its Brexit negotiations,  and concerns the party will push forward with this threat in light of Theresa May’s comments yesterday are weighing on the Pound.

Closing Update, 19th Jan; Goldman Sachs has put the brakes on plans to relocate parts of its business to London. The bank blamed the uncertainty caused by the impending Brexit, although it stressed it has not cancelled the move.

Afternoon Update, 19th Jan; Another dovish press conference from Mario Draghi is weakening the Euro. Investors had welcomed the recent strong inflation data, but Draghi has taken some of the wind out of the sails of investors hoping for less accommodative policy, stating that much of the acceleration in consumer prices is down to strength in the volatile oil markets.

Midday Update, 19th Jan; The United Kingdom is set to take up a new leadership role advocating free markets and free trade, Theresa May has told world leaders at Davos today. This has failed to have an impact upon Pound exchange rates, although GBP is continuing to hold minor gains.

Morning Update, 19th Jan; After rising on the news that Parliament will get a vote on the final Brexit deal, the Pound is back on the uptrend on the hopes lawmakers will get one on the initial negotiating position adopted by the UK government. That’s what investors will be wanting to hear on Tuesday, when the Supreme Court will announce its ruling on the government’s appeal against having to secure the approval of MPs to trigger Article 50.

GBP EUR Down from Best Exchange Rate as Boost from May’s Brexit Plan Wears Off

Closing Update, 18th Jan; The Supreme Court has announced that it will reveal its final judgement on the Article 50 court case on Tuesday. On top of Theresa May’s Brexit speech, this will further help to end the uncertainty that has been plaguing Pound exchange rates over the past few months. GBP remains on poor form today as the end of trade approaches, however.

Afternoon Update, 18th Jan; The Pound sell off has worsened today. The European Union has been reacting to yesterday’s Brexit speech by Theresa May and investors have been unsettled by some of the responses. Guy Verhofstadt, leader of the EU negotiating team, commented that the Prime Minister’s twelve points amounted to ‘an illusion’, claiming she was still trying to pick and choose the benefits of the single market without being a member.

Morning Update, 18th Jan; The Pound Euro exchange rate has slumped today as investors sell GBP to take profit on yesterday’s strong gains. Yesterday’s rush may have also been because numerous short position holders quickly closed their deals to avoid significant losses, as the Pound recovered on a more upbeat outlook for the UK going through the Brexit process.

Strong wage growth data has failed to stem the Pound sell-off this morning. Average earnings including bonuses for October were revised up to 2.6% and surprised forecasts by shooting up to 2.8% in November.

Afternoon Update, 17th Jan; The Pound gains continue to pile up, with GBP EUR now 1.9% higher than opening and GBP USD edging closer to 3%. While Nick Clegg has accused Theresa May of transforming the Conservative party into ‘UKIP-light’, Shadow Brexit Secretary Sir Keir Starmer has called it a ‘half-in, half-out plan’, welcoming the fact Theresa May has ‘ruled that hard Brexit out at this stage’. Starmer’s comments are attracting criticism from other opposition MPs, however, who are finding it difficult to reconcile his view with Jeremy Corbyn’s description of Theresa May’s intended Brexit deal as ‘bargain basement’.

EU leaders appear to have welcomed the clarity provided on what the UK is aiming for from Brexit. However, according to Director of the European Centre for Political Economy Fredrik Erixon, May’s plan for a tariff-free membership of the customs union may not be legal. Erixon explained;

One cannot have half a customs union. That would break WTO rules. I think it is obvious the UK will have to leave all its current trade arrangements through the EU and start with a new agreement.

Original article continues below…

Theresa May; Parliament Will Vote on Final Brexit Deal

After months of uncertainty, UK voters, politicians, businesses and investors are finally getting some much-needed clarity regarding the shape of Brexit. Theresa May has announced the government’s four key objectives and twelve negotiating aims for the Brexit process.

While some of those are considered negative by the markets, such as the news that the UK will leave the single market, these had been hinted at earlier in the week and so the negativity was largely priced-in to GBP EUR already.

Investors have been cheered, however, by the government’s other aims. Key amongst them is that Parliament will get a vote on the final Brexit deal. The Prime Minister has also suggested that any payments into the EU budget will be minimal, that she will seek a new form of membership to the customs union to enable tariff-free trade and that the government will attempt to secure a transitional deal to soften the economic impact of leaving.

Altogether, these assertions have pushed GBP EUR up 1.1% to the level it was at over the weekend before news the UK was set to leave the single market crippled Sterling.

Euro Soured by Mixed ZEW Confidence Scores

Much of the reason for the Euro Pound depreciation is clearly due to the Pound’s strength on Brexit revelations. However, mixed Eurozone data is also weighing on the common currency.

ZEW survey data for the current situation in Germany showed a much better-than-expected rise, jumping to 77.3 instead of from 63.5 to 65. However, the economic sentiment index only climbed from 13.8 to 16.6, rather than reaching forecasts of 18.4.

Overall, however, it is investor exuberance at the latest Brexit news that is pressuring the Euro lower.

GBP EUR Exchange Rate Forecast; Pound Back on the Up?

Unless investors unearth things in Theresa May’s Brexit aims to undermine the positivity generated by her speech, GBP EUR could remain on the rise, especially given the recent lows struck over the past week or so.

UK labour market data for tomorrow is forecast positively, which could help fuel further GBP EUR gains.

Meanwhile, the Eurozone is under threat from a double dose of inflation data tomorrow. Finalised Eurozone consumer price indices aren’t expected to be revised, but US CPI released later could further boost hopes of a Federal Reserve interest rate hike, undermining the Euro.

Interbank GBP EUR Exchange Rates

At the time of writing, the GBP EUR exchange rate was trading around 1.15, while the EUR GBP exchange rate was trending around 0.86.