GBP/EUR – Theresa May has made a decisive move and has decided to take the reigns in Brexit negotiations. This has been perceived as a positive for investors and Sterling has rallied against the Euro as a result.
This could mean we are moving closer toward a softer Brexit, which would be deemed as a better scenario for the UK economy.
There are still concerns however, David Davis and Boris Johnson’s timely resignations could have been done in order to maximise damage in Brexit negotiations and destabilise Theresa May’s position. If a leadership challenge does occur expect the political uncertainty to weaken the pound significantly. If May fails to make sufficient progress in talks within a reasonable time scale a leadership challenge could be on the cards.
There is the strong possibility of a rate hike from the Bank of England (BOE) in August, but I am of the opinion there is not strong enough economic data at present to warrant it. There has been poor inflation , retail sales and average wage growth data of late. Unemployment looks impressive, but is warped as it includes zero hour contracts which is hardly a stable form of employment.
I believe the hike is already factored into current rates. I would be wary of expecting Sterling gains following it’s confirmation, if it does go through it may well be the case that Carney talks down the chances of future rate hikes and Sterling weakens as a result.
If you have a Sterling to Euro requirement short term. I would be moving if the market hits the 1.13, I think there is still potential for Sterling weakness.
The ECB meeting is this afternoon, but I do not expect any change in stance from Draghi on QE or indeed the interest rate outlook.
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