Surprise Resignation of David Davis Brings Unexpected GBP/EUR Exchange Rate Gains
The Pound to Euro exchange rate (GBP/EUR) has made a moderate rise today, to a level of €1.1332.
This movement comes in the aftermath of Brexit Secretary David Davis’ resignation, which has had a mixed effect on the value of Pound Sterling.
Mr Davis surprised markets with his decision, which came after an apparently fruitful cabinet meeting about Brexit on Friday last week.
The abrupt departure of Mr Davis initially unsettled GBP traders, but market confidence and the Pound’s value have since been restored.
This is mainly down to Mr Davis’ confirmation that he will not be challenging the PM’s leadership, which removes one point of uncertainty:
‘I think [Theresa May is] a good prime minister. We have a difference over [the Brexit] strategy.
‘If I’d want to bring down Theresa May, now is not the time.’
Warning over Disrupted Brexit Process Limits GBP/EUR Exchange Rate Advance Today
While the Pound (GBP) has advanced against the Euro (EUR) today, its overall gains have been limited by uncertainty about David Davis’ resignation.
Reflecting on the difficulties that a change of Brexit Secretary can cause, Confederation of British Industry (CBI) Director General Carolyn Fairbairn says:
‘One of the things that business welcomed on Friday was … cabinet unity.
‘That inability to take decisions over several months had become a huge challenge in terms of uncertainty, so [Mr Davis’ resignation] is a blow this morning.
‘It is all going to be about what happens next because actually there were real rays of light [on] Friday.
‘There were gaps as well [like] services and the customs position is not clear.
‘But it is all about what happens next and how we build on momentum because we are in a race against time.’
Euro to Pound (EUR/GBP) Exchange Rate Declines on Trade War Fears
The Euro (EUR) has fallen back against the Pound today, mainly due to fears about the future of Eurozone trade.
Trade tensions are still extremely high between the US and the EU and there are fears that the US could impose punitive tariffs on vehicle imports from the EU.
Such a move would harm nations like Germany, which have a heavy reliance on manufacturing and exporting vehicles.
Considering a worst-case scenario, ING economist Carsten Brzeski says:
‘Looking ahead and despite the very benign impact of trade tensions so far, a fully-fledged trade war would surely leave negative marks on the German economy.’
Pound Sterling to Euro Exchange Rate Forecast: Will GBP/EUR Rise Further on UK Output Data?
The Pound (GBP) has a chance to extend its lead against the Euro (EUR) later this week, when Tuesday morning’s UK output figures come out.
These will cover changes to industrial, manufacturing and construction activity in May, both on the month and compared to May 2017.
Current forecasts are positive, with analysts predicting improvements for all applicable fields.
The monthly industrial and manufacturing stats could be particularly impressive, as these are tipped to show month-on-month growth compared to April.
On the other hand, Tuesday morning’s Eurozone news has the potential to extend existing Euro losses.
A pair of ZEW German economic confidence stats are tipped to show falling levels of optimism for July’s readings, which could push the EUR/GBP exchange rate lower.