With just 3 days until Christmas, the Pound remains vulnerable to further downfalls as the Brexit drama unfolds. Pound to Euro exchange rates have fallen a cent since the beginning of the trading week, mirrored against the US Dollar which carries its momentum off the back of the recent interest rate hike and Trump victory,
Hopes of a quick and simple trade agreement between the UK and EU were quickly put to bed as the ECJ confirmed that all 38 national and regional parliaments will have rights to veto any such deal. In fact, it has been suggested by Sir Ivan Rogers – UK Ambassador to Brussels, that any such trade deal could take 10 years to complete and could still fail. The recent EU-Canadian deal almost had the same fate, when earlier this year the 7-year deal was almost cancelled by frustrated Canadian officials when Wallonia, a small region in Belgium, prevented the deal from being reached.
Hopes of a transitional Brexit have helped steady the Pound in recent weeks, as businesses prepare to move mainland operations into Europe to avoid disruption. Theresa May has promised to commit to such a deal to prevent a ‘cliff edge’ Brexit which would see the UK default in some degree, to WTO tariffs, with no access to the single market.
A transitional Brexit would allow for a smoother divorce but does not resolve the issue of how the UK’s finance sector plans to compete against a market it no longer has access to.
Sharp decline in GBP/EUR exchange rates
The Pound has lost a further .5% against its major counterpart this morning following strong Italian retail sales, a Pound sell-off is also overdue with the currency overvalued in its current form. Similar patterns were witnessed against the US Dollar but in lesser form, a small Euro rally has emerged against the US Dollar which points to a US Dollar sell-off in the New Year.
Markets are readjusting to recent events, as they look to the New Year for clues on how rates will sway in light of a Trump and Brexit victory. Europe faces hefty challenges with Brexit and the European elections on the cards, whilst the US have Trump, still an unknown entity, who’s expected to stimulate the economy far beyond the expectations of the FED’s forecast.