With 2017 almost at a close markets are now predominantly looking ahead, with the next phase of Brexit negotiations liable to take the spotlight for the GBP EUR exchange rate.
Brexit Phase 2 in 2018 – What Can Markets Expect for GBP EUR?
With sufficient progress apparently made to warrant a move onto the next phase of Brexit negotiations markets are now concerned primarily with aspects of the transition period; an extra two years under EU law that is cited as means to ‘smooth’ the transitionary process for businesses and institutions.
Once this is completed trade talks should finally be able to begin, with markets expecting the framework for future EU-UK trade commerce to start in late March at the earliest.
Controversy and disagreement on this front has already begun, however, with Germany’s Europe Minister Michael Roth expressing dismay that the UK will only pay the final decided Brexit bill if there is a full agreement on trade.
In essence, the UK is utilising the divorce bill as a bargaining chip, refusing to carve the final figure into stone until a respectable trade deal is effectively assured.
The EU, on the other hand, understands this, and continues to push for the UK to ‘over-commit’ as it were, so that they are free to position themselves in the most optimum manner in trade negotiations.
Whilst all of this is occurring, however, UK businesses remain in the dark, hesitant to make significant investment decisions until better clarity is provided on aspects like trade.
In this sense, the outlook for 2018 is mixed.
On one hand, any progress demonstrated could renew interest in the Pound, with investors hopeful that trade talks will soon commence, and on the other; any stagnation could limit Sterling, particularly if it proves as severe as what was encountered in phase 1.
Domestic Data Ahead and How it Might Effect the GBP EUR Exchange Rate
The Pound could become increasingly volatile against the Euro in the first week of the New Year, with markets apprehensive that the UK manufacturing, construction and services PMI’s will show slowing activity during the December period.
Looking further ahead, markets will be looking to consumer price readings, with the Bloc’s below-target inflation rate liable to prevent the European Central Bank (ECB) from hiking interest rates for the foreseeable future.
At somewhat of a contrast, however, the UK’s soaring levels of inflation could prompt increased hawkish activity from the Bank of England (BoE), with the central bank effectively positioned as the more likely candidate for interest rate hikes in 2018.
This could bolster the GBP EUR exchange rate in the months ahead, though whether it will be enough to counteract any negativity resulting from the Brexit negotiation process remains to be seen.
Could Italy’s General Election Destabilise the Bloc and Euro (EUR) Exchange Rates?
The market is now increasingly focusing on the impending general election in Italy, with Italian President Sergio Mattarella having formally dissolved parliament today in preparation.
This election could have massive implications for the Italy, the Eurozone and the single currency itself, with the Eurosceptic Five Star Movement (M5S) expected to claim a massive 40% of the vote.
Such an eventuality could cripple the single currency, with the bloc liable to be massive destabilised in the successful election of a Eurosceptic party.
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