GBP EUR Rallies on Optimism for Brexit Deal (James Lovick)

The Euro is set for a volatile period ahead with much uncertainty for the single currency as the Italian crisis over government spending continues to give concern for the markets. Italian growth has fallen to zero which takes the economy closer to recession at a time when political uncertainty is high and this is likely to keep pressure on Euro exchange rates. The wider Gross Domestic Product figure for the EU bloc arrived weakener than expected at 0.2% between July and September down from 0.4% the previous quarter.

Rates for GBP EUR has seen a good jump higher this week as hopes for a deal on Brexit have been boosted. Earlier in the week the Brexit secretary said in parliament that he expected a deal to be reached by 21st November although the official response from 10 Downing Street played down the optimism. However the suggestion from Theresa May that a deal on financial services had been reached resulted in further gains for the pound against the Euro.

The Bank of England held interest rates at 0.75% as widely expected yesterday although reports have emerged that should a deal be reached on Brexit then interest rates may need to rise quickly and a target figure of 1.5% has been suggested. This view appears to be driving the markets higher for the GBP EUR pair although any gains from here on are likely to be limited until concrete arrangements on Brexit are signed off on. Whilst an EU summit may be called in three weeks’ time the final agreement may not be reached for another couple of months and the prospect of a no deal scenario will remain in place in that time frame.

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