The GBP EUR exchange rate was marred by increased volatility on Friday as the European Union released its draft guidelines for Brexit negotiations.
The guidelines, announced by European Council President Donald Tusk and to be approved by all 27 member states lays out the bloc’s strategy for the next two years of negotiations.
The paper suggests that the EU will adopt a ‘phased approach’ to the negotiations, only allowing for the discussion of any future relationship with the UK once ‘sufficient progress’ had been made on talks of how Britain will leave the Union.
This also includes the settling of the UK’s financial obligations with the EU, with analysts predicting that the final bill will come to around £50bn.
GBP EUR weakened slightly as Prime Minister Theresa May had originally planned to hold both talks in parallel saying that she was confident that a new trade agreement could be reached with the EU within the initial two year negotiation period, something that may prove to be impossible now.
Critics also suggest that the EU’s claim that those outside of the union ‘cannot enjoy the same benefits as a member’ will make the possibility of the UK getting a deal that is equal or better to being in the single market extremely unlikely.
Owen Smith, the former Labour leadership candidate, said;
‘The prime minister’s plan for Britain is a pipedream. The European council’s draft guidelines underline the difficulty the government will have in keeping its Brexit promises. The prime minister promised the exact same benefits on trade, but this has been explicitly ruled out today.’
However the Pound was able to fend off any advance by the Euro thanks to the release of the UK’s latest GDP figures, as the ONS reported that economic growth reaching 1.9% last year, tying Britain with Germany for fastest growing G7 economy in 2016.
Looking ahead the GBP EUR pairing is likely to be marred by further volatility as both currencies become increasingly politically sensitive, with Sterling facing further Brexit jitters and the Euro being pressured in the run up to the first round of the French elections this month.
On the data front the Pound may retreat next week if the UK’s Manufacturing PMI fails to improve for the second month in a row in March.
Meanwhile the Euro may strengthen if the Eurozone Unemployment Rate falls from 9.6% to 9.5% as expected.
Current Interbank Exchange Rates
At the time of writing the GBP EUR exchange rate was trending around 1.16 and the EUR GBP exchange rate was trending around 0.85.
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