Rejection of ‘Financial Free Trade’ Triggers GBP/EUR Exchange Rate Drop
The Pound to Euro (GBP/EUR) exchange rate has declined by -0.4% today, in the wake of a disappointing development in the City of London regarding Brexit.
A collective of top financial institutions in the City had proposed free trade conditions for UK financial services after Brexit.
Such measures would have secured the City’s status as a powerhouse of European financial services, but the suggestions have instead been rejected by EU officials.
This raises the risk of major banks and international companies exiting the City, to find greater prosperity abroad in cities like Brussels or Frankfurt.
The main sticking point was that the proposed deal would keep part of the UK in the EU single market, which goes against the overall Brexit withdrawal process.
Giving a defeated response, a senior City of London finance executive said;
‘They (the EU) have made it very clear to us that this is unacceptable to them. This was our best and frankly only proposal. We don’t have a plan B’.
Improving Consumer Confidence Fails to Boost GBP/EUR Exchange Rate
Not all of today’s UK economic data news has been negative; the GfK consumer confidence reading for January has shown an unexpected improvement from -13 points to -9.
This indicates a slight improvement in confidence levels among UK consumers, although GfK Head of Market Dynamics Joe Staton isn’t sure if this rise in confidence will last;
‘Having survived Christmas, New Year, the January Sales and Blue Monday, bullish Brits report a more upbeat view of their financial prospects for 2018 this month.
In the absence of good news about rising wages and declining inflationary pressures, [however], this off-trend number could be a temporary blip rather than a strong sign of recovery.’
Euro to Pound (EUR/GBP) Exchange Rate Rises after Core Inflation Upgrade
The Euro has appreciated against the Pound, the Japanese Yen and the US Dollar today, following an estimate of higher core inflation within the Eurozone.
The January year-on-year inflation reading has been upgraded from 0.9% to 1%, which is a step closer to the European Central Bank’s (ECB) 2% target.
The core reading is especially important because it strips out volatile factors like fuel and food prices, so is considered a more accurate figure.
Other Eurozone news has been more neutral, showing no change in December’s unemployment rate of 8.7%.
Pound to Euro Exchange Rate Forecast: Sterling Advance Possible on UK Manufacturing Stats
The week’s last high-impact UK data will be Thursday’s manufacturing PMI, along with Friday’s construction PMI.
In both sectors, economic activity is tipped to rise slightly, which could cause a small Pound to Euro exchange rate advance.
Sticking with manufacturing data, the Eurozone-wide manufacturing PMI for January will also be out on Thursday.
This is expected to show a minimal slowdown in activity during January, which could lower confidence in the Euro and trigger a EUR/GBP rate decline.