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Pound Euro Exchange Rate Tests Weekly Highs on Fresh Brexit Speculation

  • Pound Euro Exchange Rate Trends at 1.12 – Still above Monday’s opening levels
  • Sterling Buoyed by BoE Speculation – Euro under pressure on Catalonia uncertainties
  • GBP Forecast: Key UK Data Next Week – Including inflation and unemployment
  • EUR Forecast: ECB Speculation in Focus – October’s ECB meeting draws near

Updated 16:52 BST 13/10/2017:

Bank of England Speculation Likely to Drive Pound Euro Exchange Rate

Towards the end of Friday’s European session, the Pound Euro exchange rate continued to test highs above the level of 1.12.

However, due to concerns about the lack of progress in Brexit negotiations, Sterling’s gains have been limited and its movement has been volatile.

The Pound could see a more solid advance in the coming week if UK inflation and wage growth data impresses.

Inflation is forecast to come in at around 3% year-on-year, which would put pressure on the Bank of England (BoE) to tighten UK monetary policy in the coming months.

As the bank has issued repeated warnings on UK wage growth, Wednesday’s UK job market report could also boost the Pound if wage data impresses.

[Previously updated 12:53 BST 13/10/2017]

After its brief tumble on Thursday afternoon, the Pound Euro exchange rate quickly recovered and on Friday morning was testing new weekly highs.

GBP EUR hit a high of 1.1259 on Friday morning, but Sterling remained volatile and the pair was unable to hold this high.

The Pound saw stronger demand as investors reacted to comments from EU chief negotiator, Michel Barnier.

Barnier indicated the EU could help Britain with a Brexit transition period and also noted that the EU was preparing to eventually hold UK-EU trade talks.

However, EU officials have reasserted that no major progress can be made until Britain agrees to financial commitments and a divorce bill. This has kept Brexit negotiations in a ‘deadlock’ for weeks now.

[Previously updated 16:35 BST 12/10/2017]

Sterling took a tumble on Thursday afternoon, as markets expressed disappointment with the latest Brexit developments – or lack thereof.

GBP EUR briefly dropped to a fresh one-month-low of 1.1074 at around midday, when EU chief negotiator Michel Barnier once again stated that UK-EU negotiations were stuck in ‘deadlock’.

With Brexit talks stuck at a standstill for weeks now, Pound investors have been frustrated at the lack of progress and the possibility that there may not be much time left to negotiate post-Brexit trade deals.

However, the Pound Euro exchange rate recovered slightly from its worst levels following a speech from European Central Bank (ECB) President Mario Draghi.

Draghi indicated that even if quantitative easing (QE) is withdrawn as speculated, Eurozone interest rates are likely to stay low for an extended period of time. This was slightly disappointing to hawkish Euro traders.

[Published 10:51 BST 12/10/2017]

The Pound Euro exchange rate’s recovery has been limited due to a lack of strong UK data in recent sessions, as well as continued uncertainties about the Brexit process. Political uncertainties have been limiting Euro strength too, on concerns that tension between Catalonia and Spain will rise again.

GBP EUR surged from 1.1138 to a high of 1.1221 on Monday, but has since trended lower. After briefly touching on a low of 1.1131 on Wednesday evening, the pair trended above the week’s opening levels again.

Pound (GBP) Strength Limited as Brexit Talks Remain at Standstill

On Monday morning, the Pound saw a surge in demand due to market hopes that UK Prime Minister Theresa May would be able to maintain her leadership and ward off potential leadership challenges.

This helped to cool the political uncertainties that emerged at the beginning of the month, during a disastrous Conservative Party conference.

However, due to mixed UK ecostats and persistent Brexit jitters, Sterling’s gains were limited and GBP/EUR quickly shed most of its recovery attempt.

Britain’s trade deficit came in much worse than expected, with the goods deficit hitting its worst level on record in August.

NIESR’s Q3 UK Gross Domestic Product (GDP) estimate was also slightly disappointing, coming in below Britain’s normal growth trend.

Probably the biggest concern weighing on Pound investment remains the Brexit process however.

Continued signs that UK-EU Brexit negotiations are stuck at a standstill, as well as fresh concerns about the possibility of the process ending with no new UK-EU trade deal, have kept pressure on Sterling.

According to David Cheetham, chief market analyst at XTB Trading;

‘Recent events are unlikely to cause major downside for Sterling on their own but they are weighing on the Pound, and the alarming frequency with which they are occurring only increases the chances of another major political blow for the market’

Euro (EUR) Strength Limited by Catalonia Uncertainty

Political jitters weighing on the Euro lightened considerably on Tuesday night, when Catalonia leader Carles Puigdemont indicated he would rather negotiate with Spain than outright attempt to declare independence.

The Euro saw stronger demand following the news, but markets remain concerned about the tensions between Catalonia and Spain.

Spain’s Prime Minister, Mariano Rajoy, has indicated that he will not negotiate with Puigdemont due to assertions that Catalonia’s independence referendum was illegal to begin with.

Puigdemont, on the other hand, is seen as being unlikely to back down from his negotiation position, which analysts believe could lead to more tension and instability.

According to Antonio Barroso, deputy director of research at Teneo Intelligence;

‘Given that Rajoy cannot accept a bilateral discussion without Puigdemont backtracking first on independence, the most likely scenario is that the Prime Minister activates the next steps of Article 155 (the so-called ‘nuclear option’), which will probably happen within the next 48 hours.’

Pound Euro Exchange Rate Forecast: Catalonia News and ECB Speeches in Focus

Further developments between Catalonia and Spain have the potential to influence Pound Euro exchange rate movement in the coming days.

Spain’s Prime Minister Mariano Rajoy has indicated that he may take the unprecedented step of activating Article 155, taking direct rule over Catalonia.

This move would be likely to worsen tensions between Catalonia and Spain and could cause some political clashes, but may actually soothe markets and make the Euro more appealing.

Politics aside, the Euro could be influenced by upcoming speeches from European Central Bank (ECB) officials on Thursday afternoon.

ECB President Mario Draghi will be speaking at an International Monetary Fund (IMF) World Bank panel. Any signs of new forward guidance from Draghi could cause notable shifts in Euro movement.

As for the Pound, potential developments in Brexit or domestic political news could cause some movement in the coming days.

Failing that though, Sterling could remain relatively limp until next week, when fresh UK inflation and unemployment data will be published.

GBP EUR Interbank Rate

At the time of writing this article, the Pound Euro exchange rate trended in the region of 1.1160. The Euro to Pound exchange rate traded at around 0.8960.