GBP/EUR Steady, Will Germany Veto Further Brexit Extension?

GBP/EUR Exchange Rate Rangebound as Germany Considers Brexit Extension

UPDATE: The Pound Sterling to Euro (GBP/EUR) exchange rate remains rangebound this afternoon as Brexit headlines temper demand for the UK currency.

This comes in the wake of reports in the Telegraph that Germany will not agree to any further extensions to Brexit unless the UK announces a second referendum or a general election between now and October.

Observers suggests that Germany may be running out of patience with Brexit as it is a notable departure from the countries previous suggestions that a no-deal Brexit should be avoided at all costs.

GBP/EUR Exchange Rate Flat as EU Mulls €3bn Fine for Italy

The Pound Sterling to Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as investor brace for a potential clash between the EU and Italy.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1340, which is virtually unchanged from this morning’s opening rate.

Euro (EUR) Muted as Italy Worries Grow

The Euro (EUR) is treading water against the Pound (GBP) and the majority of its other peers this morning as EUR investors become increasingly unnerved by the possibility of another clash between Brussels and Rome.

This comes as tensions grow over Italy’s disregard for EU fiscal rules, with the country’s Deputy Prime Minister Matteo Salvini branding the rules as ‘obsolete’ earlier this week.

On Wednesday the European Commission began the formal procedure to take punitive steps against Italy, sending a letter to Rome asking for the Italian government to explain why its considerable debt pile continued to grow last year rather than shrinking, as required.

EUR investors fear that Rome will ignore the letter however, with the coalition government likely to adopt Salvini’s hardline stance following his party’s strong showing in the recent European elections.

Should Rome not provide an adequate response by Friday, the Commission is expected to begin implementing disciplinary measures, reported to involve a €3bn fine.

Pound (GBP) Flat as BoE’s Ramsden Pessimistic on Growth

At the same time, the Pound (GBP) is stuck in a neutral range this morning following a speech by Bank of England (BoE) Deputy Governor Dave Ramsden.

Speaking in Scotland, Ramsden suggested that the BoE may have been a little too optimistic in its growth forecast earlier this month as he warned that productivity remains sluggish and investment is likely to undershoot expectations.

Ramsden said: ‘Relative to the best collective judgment expressed in the MPC’s central forecast I am … a little more pessimistic on GDP growth than my colleagues on the MPC.’

At a policy meeting at the start of the month, the BoE raised its growth forecast for 2019 from 1.2% to 1.5%, with BoE Governor Mark Carney warning that markets were ‘underestimating’ the pace at which the bank will raise interest rates.

GBP/EUR Exchange Rate Forecast: Modest Rebound in German Retail Sales to Support the Euro?

Looking ahead, the Pound Euro (GBP/EUR) exchange rate could find itself drifting lower at the end of this week following the publication of Germany’s retail sales figures.

Economists forecast that sales will have returned to growth in April, potentially offering some modest support for the single currency.

In the meantime, GBP investors are likely to return their focus to the UK, with Sterling struggling to find momentum as markets speculate about the Conservative leadership battle and its potential impact on Brexit.

Matthew Andrews

Contact Matthew Andrews