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Pound Euro (GBP EUR) Exchange Rates Climb as EU Prepares for Trade Talks

  • Pound Euro Climbs to 1.1156 – Euro Pound Slides to 0.8967
  • EU Agrees to Prepare for Brexit Trade Talks – Faith in Pound Returns
  • UK Government Deficit Narrows – GBP EUR Climbs

The GBP EUR exchange rate caught a break this morning on news that EU leaders have agreed to begin preparing for trade talks with the UK.

German Chancellor Angela Merkel recently dismissed the idea that Brexit talks will ‘fail’, asserting that there is ‘zero indication’ that Britain will be leaving the European Union without an agreed upon deal, suggesting that calls from Labour and Tory politicians for UK Prime Minister Theresa May to walk away from negotiations are ‘absurd’.

Talking at a late-night news conference Merkel stated:

‘In contrast to how it is portrayed in the British press, my impression is that these talks are moving forward step by step. I have absolutely no doubts that if we are all focused … that we can get a good result. From my side there are no indications at all that we won’t succeed’.

Merkel’s comments were soon followed by a statement from European Council President Donald Tusk, who claimed that they have given the green light for preparations regarding trade talks to take place.

This news increased investor faith in the Pound, with a great deal of Sterling’s recent diminished value having resulted from the prospect that negotiations were failing and that a ‘cliff-edge’ Brexit might be the only option.

With this possibility temporarily quelled, GBP EUR has climbed.

It should be noted, however, that whilst May is reportedly ‘ambitious and positive’ about the negotiations, she has also acknowledged that there is ‘some way to go’ and she did not give any indication that she agrees to any terms expressed by the EU, despite their preparations for trade talks.

In this sense the elephant in the room that is the ‘divorce bill’ remains problematic, and may continue to prevent progress in the future.

UK Government Deficit Narrows, Bolsters GBP Exchange Rates

The UK’s government ran its smallest September deficit in a decade, according to data today from the Office for National Statistics (ONS).

The figures revealed that the UK government’s borrowing dropped by GBP 0.7 billion to GBP 5.33 billion in September, down from the previous period’s 6.03 billion in the same month previous year and below the forecast of 5.70.

This figure predominantly resulted from strong receipts with value-added income tax, sales tax and stamp duty property tax, with corporation tax revenues also dipping slightly.

However, despite the fall government borrowing still remains extremely high, so the investor response remained somewhat limited.

A Treasury spokesman stated:

‘Whilst we’ve made great progress getting the deficit down by over two thirds, government borrowing is still far too high at over £150m a day. We will continue to take a balanced approach that deals with our debts and allows us to invest in our public services’.

GBP EUR Forecast: EUR Turbulence Possible on Escalating Situation in Catalonia

The Pound may find even more room to climb against the Euro tomorrow if Spain declares article 155 to take control over the autonomous region of Catalonia.

Spain stated as much on Thursday, claiming that they will begin imposing direct rule unless calls for independence cease.

Catalonia leader Carles Puigdemont maintains that the region’s parliament will vote to formally declare independence if Spain continues to act repress them.

This has resulted in somewhat of an impasse – with Saturday’s deadline quickly approaching.

If Spain does indeed initiate article 155 then the EU will be regarded by markets are increasingly unstable, an event that would drive place demand for the single currency under