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Pound Sterling Euro (GBP/EUR) Exchange Rate Benefits as May Reshuffles Brexit Team

Pound Sterling Euro (GBP/EUR) Exchange Rate Supported by Brexit Reshuffle

After surging higher on Monday afternoon the Pound Sterling to Euro (GBP/EUR) exchange rate struggled to maintain its momentum.

Confidence in Pound Sterling (GBP) picked up in response to the news that Theresa May had reshuffled the team responsible for Brexit negotiations.

As the move increased May’s role in negotiations, limiting the role of the Brexit secretary, this encouraged GBP exchange rates to rally.

Analysts at Danske Bank noted:

‘May announced that going forward her Cabinet Office “will have overall responsibility for the preparation and conduct of the negotiations”, thereby taking over the role from the Department for Exiting the EU, which was downgraded to focusing on domestic preparations.

‘The decision gives May’s chief European adviser Oliver Robbins a key role following a period where Robbins frequently clashed with former Brexit Secretary David Davis. Markets reacted positively to the news with EUR/GBP falling moderately on the announcement.’

However, as the two sides remain at odds over key issues including trade and the Irish border the impact of the announcement proved relatively short-lived.

Resilient German Business Sentiment Dents GBP/EUR Exchange Rate

A better-than-expected German IFO business climate index put some pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate, meanwhile.

While the index saw a dip on the month this was only a modest decline, falling from 101.8 to 101.7, suggesting that the domestic mood is not deteriorating as severely as previously thought.

Signs of greater resilience amongst German businesses offered the Euro (EUR) some support, in spite of mounting EU-US trade tensions.

Even so, EUR exchange rates are likely to come under renewed pressure ahead of the start of fresh trade discussions between the EU and US.

If relations continue to sour, and the threat of new tariffs increases, this could help the GBP/EUR exchange rate to make further gains overnight.

Pound Sterling Euro (GBP/EUR) Exchange Rate Volatility Forecast Ahead of ECB Comments

Tomorrow’s European Central Bank (ECB) policy meeting may also dent the Pound Sterling to Euro (GBP/EUR) exchange rate as markets assess the outlook of policymakers.

The Euro is likely to see volatility as investors react to the latest commentary from ECB President Mario Draghi as he addresses the press in Frankfurt.

While no change in monetary policy is anticipated at this stage investors are keen to gauge the likely timing of the ECB’s long-awaited interest rate hike.

If Draghi appears more optimistic in outlook and the odds of rates rising earlier in 2019 this could give EUR exchange rates a solid boost across the board.

On the other hand, signs of increased dovishness within the ECB may leave the Euro vulnerable to a renewed bout of selling.

An uptick in the latest German import price index could also weigh on the Pound Sterling to Euro (GBP/EUR) exchange rate.