Since the result of the UK’s EU referendum and the UK voted to leave the EU, the EUR/GBP exchange rate has changed significantly. One year on and the negotiations between the EU and the UK are just beginning so we’ll see how this affects the pair moving forward.
With talks starting in Brussels today, the currency markets look set to focus on any Brexit news this week as fresh uncertainty looks to weaken the Pound. There are a lot of details to cover and there is still confusion over what exactly the UK wants from the complex separation from the European Union.
One thing that does appear to have been agreed is the timeline for the talks, with the basics for the UK’s exit expected to be completed by the end of 2017. Following this trade discussions can start.
David Davis, the UK’s chief negotiator said before the talks began:
We want both sides to emerge strong and prosperous, capable of projecting our shared European values, leading in the world, and demonstrating our resolve to protect the security of our citizens.”
“And while there is a long road ahead, our destination is clear – a deep and special partnership between the UK and the EU. A deal like no other in history.”
The fact that EU officials will not discuss a trade deal until the details of the exit is finalised has not been good news for the Pound. Based on this, I expect further Sterling weakness if we hear reports of negotiations between the two parties stalling. This would be great news for those converting Euros to Pounds, who were faced with a rates of 0.75 as recently as January 2016.
The EUR/GBP has dropped during the first day of discussions, moving from 0.873 to 0.88 and is at 0.8761 at the time of writing. Expect this volatility to become the norm as talks continue.
Hard or Soft Brexit
Look out for news on the type of Brexit – hard or soft. Any rumours the UK Government could soften their approach to discussions in order to gain access to the single market could strengthen the Pound against the Euro.