GBP/EUR – A no-Brexit Deal, the Nightmare Scenario for both the UK and EU

GBP/EUR - A no-Brexit Deal the Nightmare Scenario for both the UK and EU

It’s been a tough day for Sterling, which has seen its value drop against the Euro.

GBP/EUR rates fell below 1.12 earlier today with the Pound under increasing pressure, amid multiple reports regarding the prospect of a no-Brexit deal.

This potentially devastating scenario seemed unthinkable only a few months ago. However, a stagnation in Brexit talks and a standoff between UK Prime Minster Theresa May and the EU’s chief negotiator Michel Barnier has pushed negotiations to the brink of a complete breakdown.

Bank of England (BoE) Governor Mark Carney has stated that the chances of a no-deal are “uncomfortably high” and said the fallout from the potential scenario is “highly undesirable” for the UK economy.

It seems as though investors have heeded these words of caution, with Sterling being sold off during morning trading. This has given the Euro an almost artificial boost, with its value rising as Sterling’s decreased. There has been no economic data of note for either the UK or the Eurozone, meaning the reports on the current breakdown in Brexit talks have carried with them even more weight.

In truth, it has been Brexit sentiment which has driven investor confidence in GBP and to some extent the EUR over recent months. Whilst the current view is one of negativity on the UK’s side, it is unlikely to be a comfortable outcome for Barneir or the EU.

This must be considered and one of the reasons I still hope and expect there to be an outcome and some sort of post Brexit deal agreed upon. Whether this prospective deal will be desirable for all is unlikely but the chances of softer Brexit means that the Pound may find support, if this does indeed turn out to be the case.

Only time will tell, but for now I see little value in waiting or gambling on any short-term GBP/EUR currency positions. For more information on the factors that could potentially move GBPEUR rates, feel free to get in touch using mtv@currencies.co.uk.