The Pound has dropped by -0.4% against the Euro today, representing a slide from the week’s best GBP EUR exchange rate. The Pound could extend these current losses in the future, if it looks like Brexit will cost the UK dearly.
Sterling’s latest slide has been caused by the issue of Brexit, or more specifically how much it might cost.
European Commission President Jean-Claude Juncker has focused on the issue, stating that when the UK leaves the EU;
‘[There] will be a bill reflecting former commitments by the British government and by the British parliament. There will be no sanctions, no punishment, nothing of that kind’.
This bill has dominated headlines and economic forecasts, which most estimates placing the fee at around £50-52bn or €60bn.
As this isn’t an official figure, it remains possible that the actual proposed bill will be lower. Additionally, UK diplomats and negotiators might be able to haggle the EU down to a lesser figure.
Just how much the UK ends up having to pay for Brexit could have a strong influence on the GBP EUR exchange rate, with a smaller amount being more likely to lessen the damage done to Sterling.
When it comes to future Euro influencers, the European Central Bank (ECB) is likely to remain a strong source of movement.
Although some remain sceptical that the ECB could raise interest rates at the present time, IHS Markit Chief Economist Chris Williamson has recently observed that;
‘Eurozone PMI business activity and price gauges have moved further into (historical) ECB tightening territory’.
The PMI reference refers to recent Eurozone and German PMI flashes in March exceeding forecasts; this raises future expectations of Eurozone growth.
With Eurozone wage growth recently picking up along with inflation, it is not unquestionable that the ECB could raise Eurozone rates in the near-term. Such a move would likely raise Euro Pound demand considerably, but is still an unlikely occurrence.
This is particularly true because of ECB official Peter Praet’s recent comments;
‘Our forward guidance has served us well and led to financial conditions that are appropriate. We reiterated [this]…in the Governing Council. We do not give a date for when [raising interest rates] will be. The Governing Council will decide in due course how long that ‘well past’ will be. We have to be patient’.
Recent Interbank GBP EUR Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.15 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.86.
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