GBP/EUR Exchange Rate Drifts from Best Levels on Brexit Concerns
The Pound to Euro (GBP/EUR) exchange rate struck a six-month high last week in reaction to a breakthrough in the Brexit negotiations and GBP/EUR could rise back to those levels if the Bank of England delivers hawkish rhetoric later in the week.
GBP Update: Pound Sterling Rises as UK & EU Strike Brexit Deal
The GBP/EUR exchange rate surged to a six-month high late last week as news broke that UK Prime Minister Theresa May had managed to clinch a Brexit deal with the European Union.
By convincing European officials that Britain had made ‘sufficient progress’ on issues of the UK’s divorce payment, the rights of EU citizens post-Brexit and the Irish border, the PM has paved the way for discussions on future trade.
Markets responded positively to the development as it is seen to greatly reduce the possibility of a disorderly Brexit.
However, Sterling struggled to hold onto its gains versus the single currency as investors locked in profit from the six-month high GBP/EUR rate. But going forward, there is potential for additional Sterling gains now that the hurdle of Britain’s Brexit divorce bill has been cleared.
UK CPI Inflation Impresses Ahead of BoE Statement, GBP/EUR Edges Higher
The Pound received another boost on Tuesday when UK inflation printed at 3.1%, beating forecasts of 3.0%. The high consumer price index is liable to put pressure on the Bank of England to tighten policy faster than previously estimated. It will be very interesting to see whether BoE Governor Mark Carney employs more hawkish rhetoric during his policy statement on Thursday.
The BoE is widely expected to leave rates on hold, but traders will be looking to see if the Governor makes explicit reference to the recent Brexit breakthrough.
Any sign that the UK central bank sees a reduced threat of a disorderly Brexit could boost 2018 rate hike expectations, and subsequently bolster the appeal of GBP/EUR.
Data Affecting This Week’s Pound to Euro Forecast
13th December GBP Average Weekly Earnings (3M/YoY) (OCT)
13th December EUR Euro-Zone Industrial Production w.d.a. (YoY) (OCT)
14th December GBP Retail Sales Ex Auto Fuel (YoY) (NOV)
14th December GBP Bank of England Bank Rate (DEC 14)
14th December GBP BOE Asset Purchase Target (DEC)
14th December EUR European Central Bank Rate Decision (DEC 14)
14th December EUR ECB President Draghi holds news conference in Frankfurt
Pound to Euro Forecast: ECB Policy & UK Wages Due
Another factor that could buffet the Pound to Euro (GBP/EUR) exchange rate this week is the European Central Bank’s policy decision on Thursday.
Like the BoE, no new policy announcements are expected. But, unlike the BoE, there is little expectation of a shift in rhetoric. A neutral statement may have limited impact on the Euro, but the single currency could prove sensitive to any surprises.
UK wage growth is tipped to rise from 2.2% to 2.5%, which could lend Sterling some support. But, with UK CPI much higher at 3.1%, the potential for mild wage rises to impact the BoE’s policy outlook remains limited.