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Talk of Brexit Transition Triggers EUR GBP Crash Today

Since earlier on Friday, the Euro has risen slightly against the Pound. While the Pound still remains at an advantage in the pairing, the Euro has improved in the EUR GBP exchange rate to 0.8904.

The Pound remains highly vulnerable to updates on the Brexit process, so this latest shift reflects the ongoing analysis of the odds of a smooth, beneficial Brexit deal being signed.

(First published October 13th, 2017)

The Euro has fallen against the Pound today, in the wake of a mixed set of Brexit news.

  • EUR GBP trades down at 0.8880 – GBP EUR rate rises to 1.1256
  • Euro dips on Draghi speech – No sign of imminent ECB rate hike
  • Pound rises on Brexit hopes – Traders bank on transition deal
  • Euro may fluctuate on ECB speeches – Pound volatility ahead on inflation data

The Pound has strengthened due to fresh optimism about the Brexit process, following a joint press conference on Thursday.

Euro Slips on Cautious Signs from ECB

Yesterday afternoon brought a speech from European Central Bank (ECB) President Mario Draghi, which was largely dovish in tone. While the Pound has strengthened today, this news has also prevented the Euro recovering in the pairing.

Draghi stressed that there could be a long wait before tightening monetary policy, saying that the pace of wage growth remained low.

He also stated that interest rates were unlikely to be increased until ‘well past’ the cessation of quantitative easing.

Both of these remarks have had a cooling effect on the Euro, as traders look elsewhere for potential sources of Euro movement.

More recently, German harmonised inflation has been revised down in September, from 0.2% to 0%.

Pound Rises Sharply on Hopes of Solid Transitional Deal

The Pound has made a 0.5% advance against the Euro today, following news that implies a Brexit transition period could take place.

While this is not entirely new news, the suggestion that there could be two years of limbo before the UK truly leaves the EU has raised trader optimism.

This has been a dramatic reversal of fortune, as the Pound crashed on Thursday when it was said that Brexit talks had hit a ‘deadlock’.

There are expectations that EU Chief Negotiator Michel Barnier could present a Brexit transition to EU ambassadors today, which might firm the Pound in the event of approval.

Future EUR GBP Turbulence possible on ECB Speeches

The Euro may turn volatile in the near-term, as a pair of European Central Bank (ECB) speeches are incoming.

Both Yves Mersch and Vitor Constancio are due to speak; both men could reiterate Draghi’s outlook of no immediate interest rate hike.

In such a case, the Euro could be devalued because of growing concerns about limited ECB activity in the future.

Next week, the Pound could face turbulence over Tuesday and Wednesday. Data will consist of the September inflation rate on Tuesday and UK average earnings on Wednesday.

If inflation rises but the rate of wage growth falls, the Pound could depreciate. This is because under such conditions, the UK wage squeeze would worsen and the Bank of England (BoE) would have another reason not to raise UK interest rates.

Current Interbank EUR GBP Exchange Rates

At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.8880 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.1256.