After manufacturing PMI stats came out on August 1st, the Pound rallied against the Euro by 0.3%.
Looking to the future, the Pound could face high turbulence as the exact deals about the end of Brexit trickle out of Brussels.
Official Contradictions Raises Concerns about Brexit ‘Transition’
As talks in Brussels continue to decide how and when the UK leaves the EU, traders have been focusing on the nature of a possible ‘transitional period’.
This would be enacted at the end of the two-year deadline of Brexit, which will come around March or April in 2019.
Chancellor Philip Hammond’s view on the transition is that it would be an at-least two-year period during which the UK could still trade with the EU.
This has been dubbed an ‘off-the-shelf’ deal, as it is similar to arrangements made for Norway and Switzerland.
In an about-face on official policy, however, a Downing Street spokesperson has strenuously denied that this type of deal is being sought;
‘There were reports last week that we were looking for an off-the-shelf model. We are not looking for an off-the-shelf model. Precisely what the implementation model will look like is up for negotiation’.
There is still a lingering fear among some economists that the ‘no deal is better than a bad deal’ mantra may be followed by the UK government.
If it looks like the transitional arrangement will fall apart before it gets going, the Pound could crash against the Euro on mounting traders fears.
Euro Rally Possible if ECB Upgrades Economic Outlook
Euro traders are primed for further European Central Bank (ECB) announcements, which could have a positive impact on the Euro’s value.
The last ECB interest rate decision saw a ‘business as usual’ statement from President Mario Draghi. Draghi has previously stated that the threat of deflation is gone, but that the road to recovery (and higher interest rates) could be a long one.
If Draghi and his fellow policymakers appear to be approaching a unified consensus on the Eurozone’s economic outlook, the Euro could appreciate notably.
A continued period of cautious updates may have the opposite effect, however, lowering the Euro’s value as hopes of an imminent interest rate hike fade.
Recent Interbank GBP EUR Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1192 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.8933.
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