With 2017 soon to be over investors are now looking to 2018, with the Brexit transitionary deal, trade talks, and potential rate hikes on the cards. But what can we expect for GBP EUR?
The 2018 Brexit Calendar and What it Could Mean for GBP EUR
Brexit negotiation progress – or the lack thereof – remains the proverbial elephant in the room for markets, with the delay of trade talks until March 2018 at the earliest leaving the outlook of many investors gloomy.
This is because such a delay leaves UK businesses holding their breath for even longer, effectively delaying significant investment decisions until a better degree of clarity is available in regards to the future relationship of the UK with the EU.
Beyond this, the transitionary deal – now in negotiation – raises questions regarding the UK’s ability to begin trade talks with other nations like the US, particularly as during the extended 2-year period the EU is demanding that the UK remains a clear-cut member.
Nonetheless, any progress made that would indicate trade talks will begin in March, rather than face further delay, could bolster the Pound Euro exchange rate.
Conversely, delays will continue to weigh on Sterling.
Spain and the Catalan Independence Crisis – What it Could Mean for the Euro (EUR)
The Bloc continues to experience minor tremors from the ongoing independence crisis in Spain, this time in the form of an electoral vote that saw pro-independence parties come out on top.
Secessionist leader Carles Puigdemont continues to remain in exile, however, with Madrid still having an active warrant for his arrest.
In this respect it is unclear who will take charge in the months ahead, though it is certain that calls for independence will not cease.
If these calls escalate and independence is pushed then Spain could face losing a significant portion of its GDP and the Eurozone could suffer yet another demoralising fracture; an eventuality that would likely send the GBP EUR exchange rate soaring.
Pound Euro Exchange Rate and ECB, BoE Rate Hike Prospects for 2018
The European Central Bank (ECB) is not expected to raise interest rates in 2018, despite the Central bank boss Mario Draghi having struck an upbeat tone for growth at the latest rate meeting.
This is predominantly due to inflation in the bloc continuing to remain soft.
Instead, the ECB continues to focus on the curbing of its quantitative easing programme, with a €30 billion target set in January.
The Bank of England (BoE), on the other hand, is looking far more hawkish in comparison, even with talks that rate increases will be gradual.
Tighter monetary policy is all the more likely with the UK’s inflation rate continuing to sit above 3%, particularly with markets expecting it to push higher and higher before finally falling into 2019.
This effectively positions the BoE as the more hawkish option for 2018, with the GBP EUR exchange rate also liable to capitalise.
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