Pound to Euro Exchange Rate Tumbles as Trump Takes Aim at UK Brexit Plan
UK Prime Minister Theresa May’s Brexit white paper was published on Thursday and met with both optimism and scrutiny from analysts – but the latest criticism from US President Donald Trump sent the Pound to US Dollar (GBP/USD) exchange rate tumbling.
While stabilising near the week’s opening levels of 1.1310 for most of the week so far, GBP/EUR has seen fluctuations too. On Monday, GBP/EUR briefly touched a low of 1.1253 – its worst level for a quarter.
Due to fresh criticism of the UK government’s Brexit plan from none other than US President Trump, GBP/EUR slipped on Friday and at the time of writing trended in the region of 1.1290.
Some analysts have actually taken a more bullish stance on the Pound (GBP) since the Brexit white paper was published, but Trump’s comments caused concerns that the UK would not be able to form a quick trade deal with the US.
Pound (GBP) Exchange Rates Weaken as Hopes for UK-US Trade Deal Fade
UK Prime Minister Theresa May’s Brexit white paper saw mixed reception among critics following its publication on Thursday.
Some economists expressed concerns that it did not do enough to protect businesses from Brexit uncertainties, while others expect that EU negotiators will still want concessions on many parts of the plan.
Analysts noted that markets would likely feel relief at the mostly ‘soft Brexit’ plan though. Some bulls even argued the Pound could mount a solid recovery in response to this news and a likely August rate hike from the Bank of England (BoE).
However, overnight US President Donald Trump took aim at the newest Brexit plan, indicating that the quick UK-US trade deal some had been hoping for post-Brexit was likely off the table.
According to Jasper Lawler, head of research at London Capital Group:
‘Trump’s words of no deal have confirmed the fears of Brexiteers and will have stoked the fire in the hard Brexit camp, making Theresa May’s future in charge look doubtful once more. This fear was reflected in the Pound as it dropped sharply in late night trading.‘
Euro (EUR) Exchange Rate Outlook Limited as Economic Data Disappoints
While the Pound saw broad weakness on Friday, the Euro (EUR) only saw mixed benefit as it has been kept under pressure by the latest Eurozone inflation and growth outlooks.
Euro traders remain concerned about the possibility that the European Central Bank (ECB) may not take a more hawkish stance on monetary policy for well over a year, as French inflation fell short of forecasts on Thursday.
French inflation was forecast to have slowed from 0.4% to 0.1% month-on-month, but instead slumped to a stagnant 0.0%.
Similarly, the yearly inflation figure failed to advance to the forecast 2.1% and remained at 2.0%.
This was topped off by the latest Gross Domestic Product (GDP) growth outlook for the Eurozone from the European Commission. The commission’s forecast for Eurozone growth in 2018 was revised lower, from 2.3% to just 2.1%.
Pound to Euro (GBP/EUR) Forecast: Further Inflation Results in Focus
While US President Donald Trump may have spooked Pound investors this week, there is still potential for the Pound to Euro (GBP/EUR) exchange rate to advance in the coming weeks.
If the UK inflation outlook rises, or if more optimistic developments are made regarding the UK Brexit plan, investors may be relieved enough to pour into the Pound.
Britain’s May wage growth results will come in on Tuesday, and Wednesday will see the publication of Britain’s June Consumer Price Index (CPI) report. UK inflation is expected to have remained steady month-on-month and have risen month-on-month.
If UK wage and inflation price pressures are perceived to have improved, Bank of England (BoE) interest rate hike bets will rise and the Pound outlook will improve.
As for Euro investors, next Wednesday’s Eurozone inflation results from June could have a similar effect on European Central Bank (ECB) interest rate hike bets. Investors still expect the bank will leave policy frozen for at least another year.
Of course, any signs that UK Prime Minister Theresa May’s leadership is under threat following Trump’s criticism would likely leave the Pound to Euro (GBP/EUR) exchange rate even weaker instead.
Comments are closed.