The Pound Euro exchange rate is likely to become increasingly turbulent in the build-up and aftermath of today’s speech from UK Prime Minister Theresa May as she bids to break the Brexit negotiation deadlock.
Speaking around 2:15GMT today May will likely propose a two-year transitional deal to take place after March 2019.
It is also being reported that this proposal will feature payment of £18bn spread over said period.
Various pre-speech excerpts have been released in which the PM asserts that a successful final agreement is in the interests of both the EU and the UK.
‘If we can do that, then when this chapter of our European history is written, it will be remembered not for the differences we faced, but for the vision we showed; not for the challenges we endured but for the creativity we used to overcome them; not for a relationship that ended but a new partnership that began’.
May is also expected to repeat the call for the UK and the EU to be ‘imaginative and creative’, something that UK Brexit Secretary David Davis has previously said.
What can Markets Expect for GBP EUR from Theresa May’s Brexit Speech?
If Theresa May does indeed propose a two-year transitional period then the ever-looming threat of a cliff-edge Brexit in March 2019 would essentially be quelled, though at the cost of frustrating members of her cabinet, who would see such a proposal as an attempt to delay the split.
Nonetheless, markets will likely respond to such news positively, as it would give businesses more breathing-room to effectively plan ahead. This would prove encouraging in the short-term for the UK economy and likely prompt Sterling to climb in value.
Laura Kuenssberg, Political Editor at the BBC supported this sentiment:
‘…this could frustrate some voters who chose to leave, who may see departure now only in the distance… But there is hope in government circles that the offer could unblock the Brexit negotiations’.
If, however, May is unsuccessful in breaking the deadlock or getting things moving again then the Pound could fall even further against the Euro, especially in the wake of today’s positive Eurozone Markit PMI figures.
Eurozone Data Beats Expectations, GBP EUR Tumbles
The GBP EUR exchange rate is falling before Theresa May’s speech today and is being pushed lower after the Eurozone experienced a run of positive Markit PMI releases.
The IHS Markit Eurozone services PMI (a flash estimate) demonstrated an increase to 55.6 in September, up from 54.7 in August and smashing the forecast of 54.7. This reading revealed the biggest expansion in the services sector for the Eurozone in four months as new work, prices and employment all saw growth accelerate.
Eurozone manufacturing also proved encouraging by printing at 58.2 in September, up from August’s 57.4 and the market expectation of 57.1. This was the largest expansion in manufacturing since February of 2011, primarily propelled by rising exports.
Whether the Pound will be able to turn the tables as the trading week draws to a close is questionable and highly dependent on the content and response to Theresa May’s speech this afternoon.