Bank of England Points to Risk Factors in Brexit Withdrawal Process – Pound (GBP) Exchange Rate Fall
The Pound Euro (GBP/EUR) exchange rate traded within a narrow band on Wednesday, with Sterling limited in light of warnings in the Bank of England’s (BoE) latest financial stability report and the Euro encumbered by the German migrant law deadlock between Chancellor Angela Merkel and the leader of the CSU Party, Hurst Seehofer.
In regards to the former; investors were disappointed by some harsh warnings in the report, with the central bank asserting that the EU had not made enough efforts to provide temporary permissions for UK entities – something that could make the transferring of contracts or the restructuring of businesses costly and problematic.
Beyond this, yesterday’s dovish comments from soon-to-be policymaker Johnathan Haskel also weighed on investor demand for Sterling, with markets concerned that the bank will be losing a known hawk – Ian McCafferty – and replacing him with a potential dove.
Euro (EUR) Exchange Rates Limited by German Migrant Crisis
The Euro found itself under pressure once again on Wednesday, falling against the majors as markets prepare for a potential collapse in German Chancellor Angela Merkel’s coalition leadership.
Mrs Merkel is currently embroiled in a conflict with coalition partners over asylum laws, with CSU leader Hurst Seehofer refusing to budge on a push to turn migrants away at Germany’s borders (if they are already registered with another EU country).
Volker Kauder, a Senior MP in Ms Merkel’s CDU pointed out that both sides had reached an impasse in negotiations, suggesting differences were insurmountable.
‘It is very serious – we saw that in the talks, this is not about something small, it is about something central and important. We need to talk to each other’.
As we approach the EU council summit, investors will be looking for any sign of progress or stagnation in these talks, with a lack of an agreement liable to cripple demand for the single currency.
Pound Euro (GBP/EUR) Exchange Rate Forecast: Brexit and the EU Council Summit in the Spotlight
The Pound Euro (GBP/EUR) exchange rate could encounter greater volatility tomorrow as the first day of the EU council’s summit commences.
Markets will be looking for any sign of progress in Brexit negotiations, with UK businesses and unions crying out for greater clarity regarding the UK’s future outside of the EU.
If agreement on the Brexit withdrawal bill is reached then we could see GBP/EUR trade higher.
If stagnation continues, however, then it could raise the chances of a cliff-edge Brexit, which could have severe ramifications for the Pound.
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TAGS: Pound Euro Forecasts