EUR/GBP Exchange Rate Rises as Brexit Uncertainty Surges
The Euro Pound (EUR/GBP) exchange rate is currently trading close to a three week high after Theresa May rejected the EU’s draft Brexit proposals.
At the time of writing EUR/GBP is holding close to this morning’s opening levels, after the pairing jumped by around 0.9% yesterday.
Pound (GBP) Dented by Barnier Warning
Sterling sentiment nosedived on Wednesday as the European Union’s chief negotiator, Michel Barnier warned that there was no guarantee of a transition period for the UK.
This came the in the wake of Theresa May rejection of the EU’s draft Brexit treaty, which May said would threaten the UK’s constitutional integrity over the proposals for the Irish border.
Speaking in Parliament May said;
‘No U.K. prime minister could ever agree to it, we will never do so.’
On top of this the draft appears to have ignored the UK’s appeal for a more flexible Brexit transitional agreement, with Barnier’s comments suggesting that a transitional deal could be taken off the table entirely.
Andreas Steno Larsen, global currency strategist at Nordea Bank AB said:
‘The most important point made by Barnier is that there are no guarantees on the full access to the single market throughout the transition period if any of the obligations are violated.’
‘The EU seems to be saying ‘take it as it is, or there will be no transition deal,’ and the market seems to agree sending euro-sterling higher.’
Euro (EUR) Gains Trimmed by Italian Election Concerns
At the same time while the Euro has jumped against the Pound it is showing more limited movement against its other peers this morning as investors become increasing cautious ahead of the Italian election.
Current polls suggest that Sunday’s vote is likely to result in a hung parliament, with the largest portion of the vote going to Silvio Berlusconi’s right-wing coalition.
Markets fear that Italy’s fractured political landscape means that a coalition talks are likely to be long and drawn out, further delaying some much needed reforms.
Looking ahead the EUR/GBP exchange rate may retreat later this morning with the publication of the Eurozone’s latest inflation figures.
Economists forecast that headline inflation will have dip from 1.3% to 1.2% in February, likely prompting losses for the Euro as it edges further away from the European Central Bank’s (ECB) target of 2%.
Meanwhile the Pound may struggle to capitalise on any weakness in the single currency this morning as analysts forecast that the UK’s latest PMI figures will reveal that activity in Britain’s manufacturing sector will have slowed last month.