GBP/EUR & EUR/GBP Update + Brexit News

Good morning everyone,

 

As mentioned on Monday, BOE's Carney, Haldane, Cunliffe and Saunders were in London yesterday and most of their two-hour testimony at Parliament’s Treasury Committee  was spent answering questions on the likely economic effects of the agreement. The BOE was asked by the Treasury Committee to put numbers on various exit scenarios, including a no-deal Brexit which we could get as early as next week. Overall Carney gave his seal of approval to the transition deal agreed to by May with the European Union, and reiterated the dangers of leaving without an agreement. In the same session, BOE officials warned that companies are simply not prepared for a no-deal outcome, and that uncertainty was weighing on investment and growth. Carney’s insights may provoke his critics once again. He was labelled the “high priest of project fear” by Brexiteer Jacob Rees-Mogg back in September.

 

Also on Tuesday, Northern Ireland’s Democratic Unionist Party, which props up May’s minority Conservative government, flexed its muscle in a warning to the PM. For the second time in two days, the DUP refused to vote with the government in protest over May’s Brexit deal for Ireland. Without the DUP’s support, the government was forced to accept Labour amendments to its budget law. To make matters worse for May, the leaders of the Scottish National Party and the main opposition Labour party -- Nicola Sturgeon and Jeremy Corbyn -- met up to plot their assault on May’s Brexit deal on Tuesday and were reported to have had a constructive discussion.

 

Theresa May is heading to Brussels for Brexit talks, trapped between her colleagues who want her to re-write the deal and European leaders who say they’ll walk away if she does. The prime minister will travel to meet European Commission President Jean-Claude Juncker on Wednesday evening in an effort to make progress on an outline of the future trade deal the two sides want to strike. She wants European Union leaders to sign off on the 585-page exit agreement as well as the future partnership paper at a special summit in Brussels on Sunday. But Euro-sceptics in her Tory party want the PM to rip up key parts of the deal and demand more concessions from the EU before the plan is signed off. The opposition to the deal has gone down badly with EU leaders such as Germany’s Angela Merkel, amid concern from diplomats that Sunday’s summit will need to be cancelled if May pushes for more changes.

GBP/EUR & EUR/GBP Weekly Movements

With market sentiment for GBP/EUR rate on a sideway trend at time of writing - Current key trading level is now around the €1.1280’s. If we see the rate move Higher than this level for a sustained amount of time, then the likelihood of the rate moving into the low €1.13’s will be high. A leadership challenge is still hanging over PM May but the longer it fails to transpire then least likely it will be to happen however some analysts are suggesting that some Tory MP’s are holding off to see how PM May preforms in Europe this weekend when she looks to get the approval for some amendments. Any delay or cancellation of November’s Brexit Summit will most likely be seen as negative for the GBP/EUR exchange rate but on the flip side if she comes back from Brussels with the amendments she needs to keep her cabinet/DUP happy then we could see the GBP/EUR rate move higher once again.

 

Low Risk takers with pending exchanges that need to be made this week, should consider making their exchange sooner rather than later.  A leadership challenge could still be called at any point this week unleashing even more uncertainty.

Medium Risk takers with pending exchanges that need to be made this week, should be mindful a leadership challenge could be called at any point unleashing even more uncertainty and weakness in Sterling exchange rates. I would still suggest making any exchanges sooner rather than later. The fact the GBP/EUR rate has not tested the €1.11’s this week could be a positive sign that markets are still hopeful PM May will fight off any leadership challenge and possibly get the amendments she needs to keep her cabinet/DUP on her side. For those Medium to High risk takers, you may want to hold to see how things play out over the next 3-5 days.

High Risk takers with pending exchanges that need to be made this week, could see some strength put back into Sterling exchanges rates by the end of the week if no leadership challenge is made and PM May gets her amendments agreed with the EU which she’ll need to do to keep the DUP on her side. The latter may not come to light until after this weekend.

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