GBP EUR Weakness as Brexit Talks Slow (James Lovick)

Euro exchange rates could see a volatile week ahead with a number of European factors driving rates. The German Chancellor Angela Merkel saw a loss of support in the Bavarian elections. The CSU party has been the main ruling party in Bavaria for years and so this change is likely to create more political uncertainty in Germany going forward which could be negative for the Euro.

More importantly though any developments with the Italian budget that has been proposed by the Five Star and Lega parties are likely to see significant political uncertainty. The proposals which seek to cut taxes and increase government spending are very much at odds with the guidance and rules from the EU commission. The problem for Italy is that debt is running at about €2.3 trillion and any financial crisis which escalates could see major weakness for the Euro.

GBP EUR could see major market movement this week as Brexit developments look set to dominate news in the markets. The Brexit secretary Dominic Raab held unscheduled talks with Michel Barnier yesterday but talks ended after just one hour. GBP EUR has fallen from close to a 3 month high to 1.1330 and there could be further weakness if there are any cabinet resignations.

The prospect of a no deal Brexit cannot be ruled out and the DUP party happens to think this is a more likely outcome for the United Kingdom. If talks fail to reach an agreement then the pound is likely to full lower which would create some better opportunities for those clients looking to sell Euros. The EU summit later this week should give new direction for the price of sterling against the Euro.

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