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GBP/EUR Volatility possible on EU Response to UK Trade Plans

The Pound might be vulnerable to Brexit-based news today, given the scarcity of scheduled UK data.

  • GBP/EUR rate fell on Tuesday over Brexit clash – Cabinet to seek ‘bespoke deal’
  • Euro saw major rally on Tuesday – EUR demand increased by US fears
  • Pound could rise on GDP stats – Will Euro fluctuate on confidence scores?

Euro traders will also be wanting for solid economic news today, so both currencies could trade in a narrow range.

GBP/EUR Rate Dropped on Signs of UK-EU Clash over Brexit

The Pound fell by -0.5% against the Euro on Tuesday afternoon, having been devalued by bold statements from the UK government.

Just days after EU Chief Brexit Negotiator Michel Barnier declared that the UK could not have a ‘bespoke’ trade deal after Brexit, the UK government took a defiant stance.

After a cabinet meeting in Downing Street, Prime Minister Theresa’s May’s spokesman stated that;

‘The Prime Minister led a discussion on the future economic partnership the UK will be seeking with the EU.

The PM said that, in developing our future economic partnership, we should be creative in designing our proposal.

The Brexit Secretary and PM were clear that the UK is seeking a bespoke deal’.

While this ‘fighting talk’ might have gone down well among hardline Brexiteers, it suggests that the UK and EU will once again be butting heads in the future.

In the worst of situations, this could stall phase two of Brexit discussions, which include key topics like the transitional period as well as contentious plans for post-Brexit trade.

US Concerns Raised EUR/GBP Rate, Eurozone Readings Mixed

The Euro made notable gains against the Pound on Tuesday’s trading session, rising by 0.5% to a rate of 0.8857 during the afternoon.

Eurozone data wasn’t especially supportive, which left US uncertainties as the main drive for investment in the Euro.

On the homefront, data showed slowing Eurozone wage growth in the third quarter, along with less construction output than expected.

An IFO survey showed improving perceptions of German current conditions in December, but readings for future expectations and the business climate both dipped.

US Dollar traders remained on the fence because of tensions before a key vote on tax reforms, in turn raising Euro demand.

Will GBP/EUR Exchange Rate Recover on Final GDP Stats?

The Pound might dip against the Euro today, as Confederation of British Industry (CBI) trade data is tipped to show a December slowdown.

In a similarly negative prediction, experts believe that Thursday’s government borrowing reading will show a deficit expansion in November.

The dim ray of light at the end of the tunnel is Friday morning’s final Q3 GDP reading, which traders predict will be upgraded on the quarter.

That said, the expected 0.3% to 0.4% increase might be ignored by traders, if they instead focus on business investment data out at the same time.

Finalised figures are tipped to show a slowdown in investment growth for the third quarter, possibly as a symptom of Brexit uncertainties.

If the data prints as expected, the Pound could ultimately drop if traders are more worried about the future flow of investment funding into the UK.

There isn’t much high-impact data out of the Eurozone today, so the single currency could instead be affected by confidence figures out near the end of the week.

Thursday’s Eurozone-wide confidence flash could damage the Euro, if it shows a flat, as-forecast 0 point reading.

As with the UK, the week could end on a minor positive for the Eurozone if Friday’s GfK German confidence measure grows as expected.

The score for January is tipped to increase from 10.7 points to 10.8; while a small rise, this could still boost confidence in the Euro as it would show resilience despite the German political crisis.