The British Pound Euro exchange rate has performed decently throughout 2017 so far but remains well below the levels seen before the UK Brexit vote last year. With some European officials warning about future economic strain between the UK and the European Union amid the upcoming Brexit process, how would GBP EUR react?
Pound (GBP) Weakened on Long-Term UK Trade Concerns
The Pound trended limply on Monday following a few weeks of recovery, as investors grew concerned again about the long-term UK trade outlook.
UK Prime Minister Theresa May met with new US President Donald Trump at the end of last week, at what economists were hoping would be the start of a strong new relationship between the UK and US.
With Britain set to begin the Brexit process in March, the prospect of strong UK ties with nations outside the European Union has kept GBP investors optimistic. However, following Trump’s controversial ‘Muslim ban’ order over the weekend, calls have increased for Theresa May to call off Trump’s planned visit to the UK.
Uncertainty over the future of Britain’s relationship with the US, as well as ongoing concerns about UK-EU ties, have kept Sterling demand limited.
Euro (EUR) Demand Limited by Concerns of ‘Economic Cold War’
The Euro saw mixed demand last week as the Eurozone’s latest ecostats were not impressive enough to provide significant support for the shared currency.
Demand for the Euro remained limp when markets opened this week as many traders moved from the shared currency into safer alternatives like the Japanese Yen (JPY).
A worrying forecast from Italy’s deputy foreign minister, Mario Giro, has also weakened the Euro.
According to The Guardian, he argued that there were more anti-UK hardliners in the EU than it appears and that some in the EU may attempt to use the Brexit as an opportunity to undermine the City of London’s market importance in some way.
This in turn could lead to the UK taking a firmer stance, possibly even leaving the EU with no deal and cutting corporation tax to become a highly competitive tax haven.
As a result, the Euro struggled to benefit from news that Eurozone economic confidence had jumped to its best levels since 2011 in January.
British Pound Euro Long-Term Forecast: How Likely is an ‘Economic Cold War’?
Italian deputy foreign minister Mario Giro strongly believes this coming trade war could be significantly harmful to the Eurozone.
It mirrors statements from the UK Prime Minister earlier this month, who suggested that attempts from the EU to give the UK a post post-Brexit trade deal could lead to Britain accepting no deal at all and becoming competitive by sharply cutting business taxes.
However, Giro did not name names and also stated that Italy would not want to undermine London. As a result, some may take Giro’s statements as simply a warning rather than a forecast. He stated;
‘We have to negotiate with patience, calm, we have to be honest to each other, and also we have to use fair play, because if we don’t do it like this, if we act from the belly, with revenge, with sentiments, we will all be in trouble.’
If UK-EU trade discussions turn sour during the early days of Brexit negotiations as some fear, it may be the Euro, rather than the Pound, that suffers most.
However, European Union leaders have appeared cooperative in recent weeks despite May’s firm trade stance this month. As a result, this perceived ‘economic cold war’ may not be so likely after all.
GBP EUR Interbank Rate
At the time of writing, the British Pound Euro exchange rate trended in the region of 1.17, while the Euro Pound exchange rate traded at around 0.85.
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