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Pound Euro (GBP/EUR) Exchange Rate Forecast – BoE Rate Decision and Phase 2 Brexit Negotiations Ahead

Pound Sterling Currency Forecast

Brexit Negotiations Resume – What can we Expect for the GBP/EUR Exchange Rate?

The Pound Euro (GBP/EUR) exchange rate could encounter some volatility this week as markets react to the latest talks on the transitional phase of Brexit – though markets are expecting a much faster turn-around this time compared to the first.

UK Brexit Secretary David Davis and EU Chief Negotiator Michel Barnier will be meeting in London today, with key discussion points likely to include the rights of citizens post-Brexit and whether the UK will be subject to new EU laws during the proposed 2 year transition period.

Both sides currently hope to secure a transition deal for EU quickly so that EU leaders might endorse it at the Brussels summit in March – an event that would calm the nerves of UK businesses and investors.

In respect to the schedule, negotiating teams will be meeting for technical talks in Brussels from Tuesday to Thursday, with Sabine Weyland, for the EU and Oliver Robbins, for the UK expected to hash out exactly what the transition may look like.

This will then conclude on Friday with an ‘update on the future relationship’ for the bloc and the UK, an event that could have dire ramifications for the Pound.

If progress is not successfully demonstrated then markets may grow increasing apprehensive; worried that the March deadline will be missed and trade talks effectively delayed.

If progress is achieved, however, then Pound bulls will find even more support.

Eurozone Private Sector Posts Strong Performance, EUR Exchange Rate Outlook Bolstered

The near-term outlook for the Euro (EUR) grew increasingly positive on Monday as markets reacted to the extremely upbeat performance of the Eurozone’s private sector.

Businesses in the bloc kicked off 2018 in their best shape in over a decade, with IHS Markit’s final composite PMI reading printing at 58.8 in January, up from December’s 58.1 and the forecast of 58.6.

This was predominantly a result of an increase in new orders, jobs, and overall business optimism.

Bert Colijn from ING shared his thoughts on the readings, stating:

‘The optimism reflects the strong economic upturn that the Eurozone is experiencing, which continues to be broad-based and is set to continue in the months ahead. Backlogs of work are increasing, job creation is historically very strong and new orders continue to pour in. This makes for a rosy growth outlook’.

Whilst discontent regarding Germany’s lack of an effective government has continued to rein the Euro in, the robust performance posted by the bloc’s private sector has negated this somewhat by providing enduring support for the single currency.

BoE Rate Decision Imminent – What can we expect for the Pound Euro (GBP/EUR) Exchange Rate?

All eyes will be on the Bank of England (BoE) this week as investors prepare for the UK’s first interest rate decision of 2018 (due on Thursday).

The BoE already raised the base interest rate by 0.50 in November, but a strong performance from the UK’s economy moving into 2018 combined with signs that wages could be on the rise has led investors to speculate that another rate hike could be on the cards sooner this year, rather than later.

Whilst markets are not expecting a rate hike to occur at this meeting, investors will be carefully scrutinising the Monetary Policy Committee’s (MPC) accompanying statement for any clues regarding a possible rate hike in May – an event that could prompt another rally for the Pound.

Indeed, if the statement proves optimistic then markets will increasingly price in a rate hike for May.

If the statement proves cautious, however, then the GBP/EUR exchange rate could come under renewed pressure.