Pound to Euro Forecast: Theresa May stonewalled by Brussels

GBP/EUR rate hits new 22 month high of 1.1766

In today’s pound to euro forecast we discussed the latest events affecting the rates, starting with Theresa May’s Brexit deal which appears to stand little chance of passing through the House of Commons. The PM’s hopes of gaining assistance from EU leaders to push through her Brexit deal in the House of Commons have been dashed. She now must return home to face the wrath of her Party.

May’s intention was to head to the EU’s winter summit in Brussels to try and gain legal assurances that the Irish back-stop would be a temporary situation.

May stated the following upon her arrival, “I don’t expect an immediate breakthrough but what I do hope is that we can start work as quickly as possible on the assurances that are necessary”.

The response from Brussels was far from positive and they offered no legal assurances on the Irish back-stop. Apparently Mrs May offered one plan which was not to agree a conclusion date of the Irish back-stop, but she wanted a start date for the future trade relationship.

Shortly after the meeting a series of conclusions were reached by EU leaders without May.

It has been reported that one of the crucial draft lines to be removed was “The union stands ready to examine whether any further assurance can be provided”. The line was replaced with the following, “Work on preparedness at all levels for the consequences of the UK’s withdrawal to be intensified, taking into account all possible outcomes”.

European Commission President, Jean Claude Junker stated the following, “We don’t want the UK to think there can be any form of renegotiation, that is crystal clear. We can add clarifications but no real changes. There will be no legally binding obligations imposed on the withdrawal treaty”.

What next for the pound to euro rate?

This is devastating news for the PM and brings us to the next question of what happens next? The House of Commons will not be happy and the vote has already been delayed due to the lack of support for the current Brexit deal.

There are several possible outcomes. A no deal, which would be negative for the pound, a general election which would also potentially be Sterling negative and a second referendum which could cause potential Sterling strength, although I wouldn’t say by much.

The official date for the deal to go through the House of Commons is 14th January but in it’s current status it looks as though there is zero chance of it going through. Jean Claude Junker’s comments also seem to make it clear there will be no amendments.

The Eurozone is currently in no healthy state with the situation in France and Italy, but Brexit continues to be the key factor on pound to euro rates. The pound is fragile, there is little justification for any significant Sterling strength.

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