The Pound remains close to an 11 month high against the Euro which has been a welcome boost higher after a sustained period of Sterling weakness.
Brexit outlook remains positive
The outlook on Brexit for the moment is looking brighter than it has been after the second round of Brexit negotiations has been completed although it is highly likely there will be some more Brexit twists and turns in the road ahead. Of course the third and final round of negotiations have now commenced and this is where the red lines from both the EU and UK will invariably end up being negotiated on.
The Pound has marginally come off its recent highs and this is as a direct result of the commentary last week from the Bank of England. Governor Mark Carney made clear after the weaker inflation data from last week that it may be too early to raise interest rates.
Weaker retail sales data has also brought into question that rate hike. The markets had almost entirely priced in a rate increase at the May meeting so it is no surprise the Pound has fallen lower following these developments.
In my opinion the central bank has a good reason to pause for thought and is likely to take that opportunity.
Today is important for the GBP/EUR pair with the European Central Bank (ECB) interest rate decision. Whilst other central banks are becoming more hawkish and have already raised interest rates the ECB has so far been reluctant to jump too soon and is still enduring a tapering of its substantial asset purchasing scheme which has been going on for years. With low inflation and weak wage growth still giving a headache for ECB President Mario Draghi the Euro is unlikely to make any major gains for the foreseeable future. As such there is likely to be a limited move higher for the GBP/EUR pair following this afternoon’s announcements.