The 3-year long struggle of the United Kingdom to exit gracefully from the European Union could be finally entering its last stage. The British Parliament has yet to approve the package negotiated with the European Union first. On the other hand, the looming elections on December 12th is another factor that needs to be taken into consideration at the same time.
One thing that is suitable in the present scenario is a hard Brexit, which is now off the table after strenuous negotiations between EU and UK. Since the option of hard Brexit is now not an option, the Gross Domestic Product (GDP) forecast can be increased from +1.0% to +1.2% for the Eurozone in the next year. As is the case, Brexit will be unresolved for the time being, which means that Eurozone’s economy could remain dampened all through the year 2020. The severe downturn in the German industry could also further deteriorate the economic climate in the region.
The economic climate during the month of October was remarkably low. This record low parallels the low in early 2015. Interestingly, the growth outlook has been quite cautious at the global stage, too. This is, in part, due to the partial agreement that USA and China has reached in its ongoing trade war.
No deal Brexit risk reduced
Since the prospects of a hard Brexit are significantly reduced, it is easy to cast some light on euro forecasts, currency markets and interest rates in the region. From the perspective of the European Central Bank (ECB), the likelihood of a cut in deposit rate is improbable as well. This is due to fragility of the Eurozone banking environment which would be potentially affected by this move.
The upturn in economy next year is likely to initiate a revision in the monetary policy. In the case of German government bonds, a slow increase in yields is predictable but a sideways movement would be hard to come by, too.
Since the dollar has risen to its peak, there is potential for the euro to rise as well now. In light of the interest rate decision by the US Federal Reserve Bank, any probability of interest rates are quelled. Interestingly, the Eurozone economy stands to benefit more from the current climate than the American economy. The high tides on which the American dollar is riding, is indirectly benefitting euro to a certain extent as well.
It remains to be seen how the euro fares as these global events take shape one after the other. For more information on how these factors are likely to impact the GBP/EUR interbank exchange rate in the coming weeks, you can contact me directly, Joseph Wright, on email@example.com. I will endeavour to get back to you as soon as I can.