The Pound is set to close the week at 1.17 against the Euro, although a sudden drop in the GBP/EUR currency pair is still possible.
As well as being dragged down by a string of negative UK data releases, the Pound has also been damaged by uncertainty about the ‘type’ of Brexit being aimed for.
Broadly speaking, a ‘soft’ Brexit entails the UK keeping EU single market access in some form, while allowing a smaller flow of free movement from the EU.
By contrast, a more economically dramatic ‘hard’ Brexit could see the UK leave the EU without a trade deal of any description, at the benefit of greater national border controls.
A soft Brexit is generally predicted to be the better of the two options for the UK economy; this side has been supported by the German business ‘Mittelstand’.
Composed of hundreds of thousands of small and medium-sized businesses, Mittelstand President Mario Ohoven sees soft Brexit as the best of the two outcomes;
‘In the end, a soft Brexit should be reached. It is important that the UK stays in the single market, or that the UK joins an agreement similar to the EFTA (European Free Trade Association).
The German Mittelstand does not believe in the world economy as a fixed size cake, in which every country has to fight against the other countries to increase its share. A hard Brexit, or an increase in protectionism, will only lead to a decrease of the cake as a whole. I want to be very clear here – Brexit knows no winners, all sides will lose’.
Another opponent of hard Brexit has been former Education Secretary Nicky Morgan;
‘Crashing out of the EU at the first sign of tension in our negotiations should not be something the government entertains. I agree with the chancellor, Philip Hammond, who said he thought it would be “ridiculous” to leave without a deal’.
If the UK government seems set on the path of hard Brexit, the Pound could slide gradually as EU negotiations drag on.
The Euro could also find itself shifted by the tact taken on Brexit. While hard Brexit plans could initially panic Euro traders, the single currency may ultimately rally if it seems that the UK’s crashing out will strengthen remaining EU nations instead of weakening them.
Recent Interbank GBP EUR Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.17 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.85.
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