The Pound has made some small inroads across all of the major currencies to start the week as the discussion in Britain continues to revolve around the Brexit negotiations and whether the government is prepared to offer more to settle the divorce bill. To date the UK has offered €20 billion to the EU although this has not been deemed enough to move forward onto future trade talks. A cabinet meeting held last night has found agreement for Britain to offer more but only on the condition that the conversation of future trade is to open. It was also repeated from Downing street that “Nothing is agreed until everything is agreed”.
The exit bill is the hot potato at the moment and the prospect of moving on to UK/EU trade talks could see material gains for the Pound if and when it happens. A future trade agreement would be seen as good news for the price of Sterling as it would cement good future trade relations and so there could be some serious upside for the Pound.
The problem however is that no agreement will be reached until right up until March 2019 if it happens at all. It leaves a very long period of uncertainty and in my view a sustained period of Sterling weakness. The EU summit in the middle of December is the next key date that should be marked in the diary as this is where the EU will make the decision on whether the discussion can move on to future trade. As such expected considerable volatility for the Pound in either direction depending on the outcome of that meeting between EU leaders.
Prospect of new German elections to cause GBP/EUR volatility
GBP/EUR exchange rates are seeing an interesting time after German negotiations between the three parties of the Jamaica coalition have broken down. German Chancellor Angela Merkel now faces the prospect of new elections due to a lack of agreement between the main parties. As events unfold there is likely to be considerable volatility for the Euro and there is every chance that new elections could see a sustained period of Euro volatility.