Mixed Messages on Brexit Goals could Weaken GBP/EUR Exchange Rate
The Pound to Euro (GBP/EUR) exchange rate has risen slightly today, but the pairing could face future difficulties based on the latest Brexit news.
Speaking in Davos, UK Chancellor Phillip Hammond claimed that after Brexit, there will only be ‘very modest’ changes to UK-EU relations.
This outlook has been officially dismissed by Downing Street, where a spokesperson has said;
‘The Government’s policy is that we are leaving the Single Market and the Customs Union.
Whilst we want a deep and special economic partnership with the EU after we leave, these could not be described as very modest changes’.
If the government’s line on Brexit keeps clashing with that of high-ranking ministers, the Pound could decline because of fears of high-level unrest in government.
Rising BoE Optimism Strengthens GBP/EUR Exchange Rate
A recent factor that has raised confidence in the Pound has been an optimistic statement from Bank of England (BoE) Governor Mark Carney.
Mr Carney has been considering the chances of a UK economic growth spurt in 2018, stating;
‘The global economy has really accelerated over the course of the last year [and] we think it’s going to pick up again this year.
The UK is a bit of an outlier in that [the IMF] don’t see it picking up.
I think we at the Bank of England see some potential for a bit of a pickup.
There’s the prospect this year, as there’s greater clarity about the future relationship with Europe, and subsequently, the rest of the world, for a conscious recoupling of the UK economy with the global economy’.
If the UK economy seems likely to grow in tandem with the rest of the world in 2018, the Pound could progressively rise against the Euro.
Near-Term Agreement to German Coalition could Boost Euro Pound (EUR/GBP) Demand
The Euro could rise sharply against the Pound in the coming weeks, if German coalition talks are finally concluded with a political union.
Angela Merkel’s CDU/CSU union and the SPD Party have been in talks since the start of 2018, but still haven’t come to a final agreement on making a new government.
While confidence levels in Germany remain relatively high despite the lack of an effective government, these could start to dip if coalition talks drag on.
If all three parties come to a near-term agreement, however, the Euro to Pound exchange rate could rally because Germany would again be ready to lead in the Eurozone.
Euro to Pound Exchange Rate (EUR/GBP) Exchange Rate Decline possible on Confidence Stats
Looking at more immediate sources of Euro to Pound movement, the Eurozone consumer confidence data out on 30th January could have a major impact on the pairing.
Consumer confidence is predicted to have risen in January, but economic sentiment and industrial sentiment readings are tipped to decline.
Mixed confidence readings for the first month of 2018 could lower confidence in the Euro, as they may suggest continued economic uncertainty for the rest of the year.
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