The Pound has made major gains against the Euro today, rising by 0.3% to post an exchange rate of 1.1497. This is a significant improvement on the week’s opening GBP EUR exchange rate, which started off low at 1.1397.
High GBP EUR Volatility Forecast if Brexit Talks Fall Through
Looking ahead, the Pound could turn volatile and post major losses against the Euro, depending on how initial and longer-term Brexit negotiations turn out. These fears could be realised after the UK general election, when a new government is formed.
An EU official has declared that from the UK, the multinational negotiating team is looking for;
‘A government strong enough to negotiate. We need a stable partner’.
This implies that if June 9th sees a hung parliament or a party taking the bare minimum of required seats (known as a minority government), then Brexit negotiations will not go particularly smoothly.
According to Reuters’ Alastair Macdonald and Jan Strupczewski, a leading party opposed to Brexit would also be an undesirable outcome;
‘Few European officials give much thought to trying to halt or soften May’s “clean break” approach to Brexit, for example by trying to stay in the EU single market. Such an outcome, diplomats believe, could imperil the chances for an orderly divorce. The idea that a new government could try to reverse the referendum result is also unappealing to Brussels, where even Britain’s traditional allies would rather see the back of a troublesome and internally divided partner than face more upheaval’.
This specifically relates to the Liberal Democrat and Green parties, but can also refer to parties that want a full-speed ‘Hard Brexit’, which would be a similarly disruptive development in negotiations.
Future Euro to Pound Losses Possible on ECB Interest Rate Decision
The next major Euro influencer will be the incoming European Central Bank (ECB) interest rate decision for June. This is forecast to bring another interest rate freeze at 0% from policymakers, but the Euro could still be heavily impacted by official statements.
If policymakers including ECB President Mario Draghi are optimistic about the Eurozone economy, then this could raise hopes of an incoming ECB interest rate hike.
In the wake of such hints, any positive high-impact Eurozone news such as rising inflation or notable GDP growth could cause the Euro to appreciate heavily against the Pound.
Recent Interbank GBP EUR Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1484 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.8706.
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