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Three-Month High GBP EUR Exchange Rate Doesn’t Last, But Can the Pound Rebound Again?

  • GBP EUR ‘Soft Brexit’ Bounce – Pound spikes briefly in response to comments from the Brexit Secretary.
  • Pound Buoyed by Data – UK construction sees unexpected growth.
  • Italian Referendum Ahead – Euro pressured as Referendum could lead to banking crisis.

 The GBP EUR exchange rate briefly spiked by around a cent yesterday as markets reacted positively to remarks from Brexit Secretary David Davis, who suggested that the UK government would be willing to pay for access to the single market.

Pound Euro (GBP EUR) Unable to Stabilise at ‘Soft Brexit’ High

The Pound Euro (GBP EUR) exchange rate was catapulted to a new three-month high yesterday as Davis indicated that the government may be willing to negotiate for a ‘soft Brexit’. Davis responded to a question about paying for access to the single market by saying;

‘The major criterion here is that we get the best possible access for goods and services to the European market – and if that is included in what you are talking about, then of course we will consider it.’

However the Pound was unable to hold on to its gains for long as investors quickly began to question the merits of such a deal, as Labour leader Jeremy Corbyn explained;

‘If Europe puts tariff barriers against products coming from Britain, the government’s going to pay all the tariffs – that sounds a very strange way of entering the negotiations when you’re trying to get market access both ways. It doesn’t sound a very well thought-out policy.’

Markets also reacted negatively to the UK government’s continued refusal to discuss its plans for ‘Brexit’, simply reiterating that they would consider all possibilities, and that Article 50 would be triggered in March 2017.

British Construction Data Buoys Pound Sterling (GBP) Exchange Rates

Sterling began to creep back up this morning however as Markit reported that the UK’s Construction PMI performed better than expected.

Figures showed that the UK’s construction sector grew from 52.6 to 52.8 in November, beating predictions that it would shrink to 52.2. This was the fastest rate of growth since March and the measures best levels since the UK’s vote to leave the EU back in June. This helped allay concerns that ‘Brexit’ was having a negative impact on the British economy.

Euro (EUR) Pressured by Italian Referendum

Meanwhile the Euro is likely to struggle today as Sunday’s referendum in Italy continues to place pressure on the single currency as it looks increasingly likely that Prime Minster Matteo Renzi’s proposed constitution changes will be rejected.

Renzi has vowed to resign if this proposals are defeated which could led the way for a new government formed by the Eurosceptic Five Star Movement, which has enjoyed enormous popularity in recent weeks.

Adding to the concerns is that Renzi’s resignation could delay much needed reforms to the Italian banking sector as investors fear that it could lead to further pressure on the Eurozone economy if something is not done.

GBP EUR Exchange Rate Forecast: Supreme Court to hear Government’s ‘Brexit’ Appeal Next Week

The GBP EUR exchange rate may fall next week if the Supreme Court decides to uphold the UK government’s appeal against a High Court judgement in October that ruled that the government would not be allowed to trigger Article 50 and begin the ‘Brexit’ process without a vote in parliament.

Markets fear that if the government wins the appeal then there will be nothing to stop it from pursuing a ‘hard Brexit’ as it seeks greater immigration controls in exchange for losing access to the single market.

Current Interbank Exchange Rates

At the time of writing the GBP/EUR exchange rate was trending around 1.17 and the EUR/GBP exchange rate was trending around 0.84.