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Pound Euro Long-Term Forecast: Hammond’s Comments put UK-EU Trade in Question

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The Pound has dropped moderately against the Euro today, following a surprisingly-severe slump in December retail sales; a worrying development ahead of an uncertain economic future for the UK.

Eurozone news has been thin on the ground after Thursday’s European Central Bank (ECB) event, but the Euro has still been in higher demand than the Pound.

GBP EUR Exchange Rate Crumbles as Christmas Spending Surprisingly Drops

The UK retail sales results for December have damaged the Pound Euro exchange rate, causing GBP EUR to drop by -0.2%.

Although the monthly results for December had been expected to fall regardless, the sizable drop on the month and considerable slowdown on the year in December, with and without fuel being factored in, led the Pound to drop on fears of how higher inflation could impact UK sales in the future.

The last big Eurozone news was that the European Central Bank (ECB) was leaving interest rates at 0%, in addition to ECB President Mario Draghi offering a positive outlook on Eurozone growth in 2017.

More recently, Eurozone data has been sparse, though this hasn’t prevented the EUR GBP exchange rate from rising to 0.86. German producer prices have risen in December, though the Greek current account has moved further into a deficit, indicating that Greece is still borrowing more than it is lending.

Pound Sterling Losses Likely if UK Fails to Hold onto EU Trade Agreements

For the future performance of the Pound Euro exchange rate, Sterling is expected to struggle if the UK fails to save face with EU negotiators and ends up with a highly disadvantageous trade deal, when compared to the present one.

Speaking at the World Economic Forum (WEF) event in Davos, Chancellor Philip Hammond has remarked that if the UK is unable to reach an agreeable EU trade deal by 2019, then it could establish an ‘interim arrangement’.

While this would likely still keep trade links between the UK and the EU active, the arrangement is broadly expected to be a poor one when compared to the alternatives and could see confidence in the Pound erode considerably.

Euro Predicted to Firm if Trump Trade Shutdown Increases Eurozone Links with Other Partners

The future for the Euro may be closely tied to the economic policies of Donald Trump during his tenure as US President.

Given Trump’s apparent hostility towards globalisation and free trade, the Eurozone could struggle in the future if Trump makes it harder for US-EU trading to operate.

On the flipside, however, if Trump’s isolationist policies lead the Eurozone to become a more attractive option to global traders, then the multinational union could capitalise on a suddenly undesirable US and gain a boost in global trading partnerships, raising Euro demand in the process.

Recent Interbank GBP EUR Exchange Rates

At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.15 and the Euro Pound (EUR GBP) exchange rate was trending in the region of 0.86.