Brexit phase 2 has officially been given the green light, but news that trade talks have been delayed and that the UK’s financial sector will not be given special access to the single market have continued to weigh on the outlook for GBP EUR.
Delays and Divisiveness – Transitionary Talks and What to Expect for GBP EUR
Whilst phase 2 has been given the green light, the UK and the EU still face a number of hurdles before talks can begin in earnest, the first being the EU wish that commitments made in ‘phase 1’ will be enshrined in legal terms.
This could essentially cement Westminster’s proposed divorce bill sum, leaving Brussels with the freedom to allow or deny aspects of trade without fear of repercussions in the form of a smaller divorce bill.
This would then potentially give the EU the upper hand for the rest of negotiations.
As a result, talks have taken upon a cat-and-mouse esque impasse, with the EU looking to pin down an acceptable bill and the UK looking to withhold a solid, written in stone, figure until trade is agreed upon.
Beyond this, debate is ongoing regarding what the 2 year transitionary period will entail, with the UK insistent that they will not accept new EU laws during this period and the EU arguing that they must.
With this liable to continue for some time, and markets not expecting trade talks to take place until March next year, the GBP EUR exchange rate will likely encounter ongoing pressure.
Could a Successful Trump Tax Vote Limit Euro (EUR) Exchange Rates?
Tuesday night will feature the highly anticipated vote on US tax reform, with Republicans now confident that they will get the necessary votes required.
If this does occur then the final hurdle will be effectively cleared and the new reform measures will be written into law, with corporate taxes cut from 35% to 21% and the number of federal income tax brackets reduced from 7 to 4 (to name only a few changes).
Investors would regard this as a major win for the economic future of the United States, with the lower corporate tax rate liable to attract large corporations back to operate within America – in turn potentially fostering growth.
The Euro could, however, come under significant pressure in this regard, with market demand for the ‘Greenback’ liable to leech attention away from the single currency.
This could then, in turn, give the GBP EUR exchange rate space it needs to claw back some losses.
Domestic Data on the Horizon for GBP EUR
This week is quite a quiet one for ecostats relating to GBP EUR, though Wednesday will feature Germany’s produce price index figures and the Eurozone current account readings, Thursday will feature the UK’s GfK consumer confidence reading for December and government borrowing figures, and Friday will feature the UK’s final GDP estimate.
In the absence of notable data releases the market will likely shift attention to political movements, with anything that reveals progress in Brexit talks liable to propel GBP EUR and anything that demonstrates stagnation – or indeed Conservative Party in-fighting – liable to limit the pairing.
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