Brexit Transition Formally Approved by EU – Pound (GBP) Exchange Rate Outlook Positive
The outlook for the Pound Euro (GBP/EUR) exchange rate grew increasingly positive on Friday on two fronts; the first being news that EU leaders have officially approved the terms of the UK’s Brexit transition process, and the second being surging optimism for a Bank of England (BoE) rate hike in May.
Regarding the first; the UK’s transition text, which discussed elements such as security, trade and a variety of other issues, was agreed in less than half a minute, laying the groundwork for the next phase of Brexit talks to begin.
This means that the UK will engage in a transition period lasting until the 31st of December 2020, with EU/UK citizens free to move and settle, and the UK free to negotiate trade deals with other nations (though there has been pushback against the UK negotiating with the US).
UK Prime Minister Theresa May greeted this news with optimism, stating that she believes there is a ‘new spirit of cooperation and opportunity ahead’, a sentiment seemingly reflected by EU leaders.
The 800-lbs gorilla in the room that is the issue of the Irish border remains, however, with no successful agreement yet reached on this subject – an ongoing concern for the markets.
Nonetheless, the terms of the negotiation period should provide UK businesses with some clarity, and ease investor fears of a cliff-edge – thus this news has been good for Sterling’s outlook.
Bank of England Expected to Raise Bank Rate in May – Euro (EUR) Exchange Rates Liable to Come Under Pressure
The second positive factor for Sterling’s outlook is the current hawkishness of the BoE, a perspective reflected today by Policymaker Gertjan Vlieghe, who asserted in a speech in Birmingham that he sees the need for one or two more rate hikes every year, for the next few years.
This attitude was shared by Policymakers Ian McCafferty and Michael Saunders, both of whom voted for a rate hike at the recent BoE rate meeting.
Moreover, the minutes at said meeting revealed concerns amongst Policymakers that not raising interest rates soon could mean that the bank is forced to raise them faster, and higher down the line in order to handle the accelerating UK economy.
GBP/EUR Exchange Rate Outlook: EU Secures Temporary Exemption from US Steel, Aluminium, Tariffs, but will it last?
The outlook for the Euro grew slightly better on Friday, with markets pleased to hear that US President Donald Trump has officially granted the EU exemption from US tariffs on steel and aluminium.
Trade Representative Robert Lighthizer made the announcement to the Senate Finance Committee, asserting that the President believes it best to add the EU to the list of exempt nations whilst negotiations are in full swing.
Lighthizer stated:
‘The idea that the President has is that, based on a certain set of criteria, some countries should be out. What he has decided to do is pause the implementation of the tariffs in respect to those countries’.
This bodes well for the bloc, but it should be stressed that the exemption only lasts until the 1st of May and EU Council President Donald Tusk and many other EU leaders have expressed concerns that this will not be long enough to navigate trade talks.
Indeed, lacking agreement it is entirely possible that this exemption will not be extended, potentially leaving the EU’s private sector economy vulnerable to the tariffs.
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