Suggestions European Parliament Want Special Single Market Access for UK after Brexit Boosts Pound Sterling to Euro (GBP/EUR) Exchange Rate
A report in Business Insider that the European Parliament is preparing to call for the UK to receive ‘privileged’ access to the single market following Brexit has boosted the Pound Sterling to Euro (GBP/EUR) exchange rate today.
The GBP/EUR pairing had weakened earlier this morning, as markets prepared for a speech from Brexit Secretary David Davis in Vienna.
The speech saw Davies reassuring the EU that the UK does not intend to slash regulation in order to undercut the block following Brexit, with markets cheered by the conciliatory tone taken by the UK government.
This was not the only sign today that perhaps negotiations are reaching a more amicable phase, after Business Insider reported that the European Parliament is preparing to reveal a 60-paragraph resolution that would allow the UK a certain degree of access to the single market as well as membership of certain EU agencies.
Up until now, the EU has been largely firm and unanimous on the idea that the UK cannot ‘cherry pick’ the elements of membership it likes, while discarding those it does not agree with (such as freedom of movement), but the new resolution offers a different position to that of Chief Negotiator Michel Barnier.
The GBP/EUR exchange rate has therefore leapt half a percent as markets hope that the UK can yet secure a ‘soft Brexit’.
Strong US Dollar and Obstacles for Next Greek Bailout Payment Further Heighten GBP/EUR Exchange Rate Gains
The Euro has come under pressure today from a strong US Dollar, which is rising on firm odds of an interest rate hike from the Federal Reserve next month, allowing the GBP/EUR exchange rate to advance further.
The latest ZEW sentiment surveys for Germany and the Eurozone have largely disappointed, although the German expectations index for February beat forecasts of a drop from 20.4 to 16.0 after only dropping to 17.8.
However, the current situation index for Germany fell further-than-expected from 95.2 to 92.3, against estimates for a drop to 94, while the Eurozone economic sentiment index fell from 31.8 to 29.3.
Further weighing on the Euro is the fact that the latest Eurogroup meeting has concluded that the Greek government has not yet hit all targets necessary to unlock the next tranche of bailout funding.
Athens still has to implement electronic auctions for foreclosed properties and the privatisation of the old international airport in the Greek capital in order to unlock a €5.7 billion payment.
Although the ministers expressed confidence that the Greek government would soon be able to comply and that the money would be released soon, investors were nonetheless wary; this is not the first time payments of the Greek bailout have been delayed due to the sometimes controversial reforms and austerity measures Eurogroup has demanded.
Pound Sterling to Euro Exchange Rate Forecast to Race Higher if UK Wage Growth Figures Impress and BoE Policymakers Seem Upbeat
There is plenty on the economic data calendar tomorrow that could keep the GBP/EUR exchange rate on volatile form.
The day’s UK economic data arrives in a single slew, with jobless claims data, average weekly earnings, the ILO unemployment rate, the employment change figure and government borrowing stats all being published simultaneously.
While each of the data releases could be impactful, markets are most-likely to focus on the average weekly earnings figures for the three months year-on-year to December.
With inflation still well above the Bank of England (BoE) target range, UK households will need to see an acceleration in pay growth if they are to uphold the current strong pace of spending that keeps driving UK economic growth forwards.
Pound Sterling to Euro exchange rate turbulence could increase mid-afternoon, as Bank of England (BoE) officials Mark Carney, Ben Broadbent, Andy Haldane and Silvana Tenreyro are all due to speak in London.
Signs of confidence from these members of the Monetary Policy Committee (MPC) could send the Pound soaring.
Meanwhile the Euro will have a chunk of preliminary PMIs for February to contend with; manufacturing, services and composite indices are due for release from France, Germany and the Eurozone as a whole.
Forecasts are for a slight weakening on January’s readings; while the figures will remain strong and analysts may therefore suggest the data shows that the Eurozone economy continues to grow at a strong clip, some could worry that this is a sign Eurozone growth peaked last year and that there is room to slow down further.