GBP/EUR Exchange Rate Undermined by Fresh Brexit Jitters
The Pound to Euro (GBP/EUR) exchange rate opens this week on the defensive, after the UK Chancellor, Sajid Javid vowed to end alignment with the EU after Brexit.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1689, down around 0.3% from today’s opening level.
Pound (GBP) Slides on Brexit Divergence Concerns
The Pound (GBP) is facing broad pressure this morning as markets respond to comments made by Sajid Javid over the weekend.
Speaking to the Financial Times on Saturday, Javid claimed the UK will not be a ‘ruletaker’ after Brexit, vowing that the government will end alignment with the EU.
Javid spoke about the need for businesses to ‘adjust’ to the reality that the UK is leaving the EU and warned that the government would not support manufacturers who are still urging a deal which keeps the UK closely aligned with EU regulations.
Javid said:
‘There will not be alignment, we will not be a ruletaker, we will not be in the single market and we will not be in the customs union – and we will do this by the end of the year.’
Forget staying close to EU after Brexit, chancellor tells business https://t.co/rEkNTT0TXf
— Financial Times (@FinancialTimes) January 18, 2020
The comments are weighing on Sterling sentiment this morning as markets fear divergence with the EU will make it difficult for the UK and EU to agree on a comprehensive trade deal and that it could take a heavy toll on the UK economy.
Euro (EUR) Steady as All Eyes on the ECB
At the same time, the Euro (EUR) is trading steadily at the start of this week’s session as markets brace for the European Central Bank’s (ECB) policy meeting later in the week.
While the ECB’s meeting is unlikely to offer much excitement in regards to monetary policy, the official start of the bank’s strategy review is eagerly anticipated by EUR investors.
Carsten Brzeski, Chief Economist at ING Germany, comments:
‘The highlight of this week’s meeting should be the announcement of the official start of the strategy review. A lot has been said and speculated, both by market participants and ECB officials.’
Of particular focus will be the ECB’s stance on inflation, with the Euro likely to be infused with some volatility if the bank hints its review could involve the altering of its inflation targets.
GBP/EUR Exchange Rate Forecast: Weak Wage Growth to Drag on Sterling?
Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may continue to trend lower on Tuesday with the publication of the UK’s employment report.
This is forecast to show that while unemployment held at a near 45-year low in November, wage growth continued to slow.
A slow wage growth reading could put significant pressure on Sterling tomorrow as it further increases the odds that the Bank of England (BoE) will pursue an interest rate cut in January.
Meanwhile, in focus for EUR investors tomorrow will be the latest ZEW economic sentiment index.
Economists predict this will show sentiment in the Eurozone began to weaken again this month, potentially denting the appeal of the Euro. the E