Heading into a new trading week, both the UK and EU are set to meet today to start the Brexit negotiation process. With both parties heading into the negotiations with strong expectations, demands and threats, the road ahead for GBP will be far from simple. GBP lost strength last week with an early dip against the euro and heightened no-deal fears. GBP investors will be keen to observe the developments from the opening week to get an idea of the tone that is likely to be carried throughout the negotiation process, but with tensions already high, investors have been given a taste of what is to come.
Brexit talks to begin today, tensions already high
With the UK and EU meeting today to attempt to begin the process of arranging a trade deal for the post-Brexit era, many investors are looking for direction as to how GBP and EUR will fare as the talks get underway, with tensions already high following last weeks mandate releases.
The EU noted last Tuesday that it expects to see the UK abide by EU laws, rules and regulations following their departure from the EU. However, the complete opposite was expressed from the UK two days later as they noted that following these laws is out of the question as the UK looks for ‘total sovereignty’.
Michael Gove read the document which noted that “whatever happens, the government will not negotiate any arrangement in which the UK does not have control of its own laws and political life”. With the two parties wanting completely different outcomes, the likelihood of the two striking mutual ground took a hit last week.
Potential increase in volatility for GBP with rise in no-deal Brexit fears
Looking ahead to this week, the main driver of the pound to euro exchange rate will be the Brexit negotiations. Euro buyers with pounds would be wise to keep up to date with the unfolding of the trade talks for their best rates. With fears of a no-deal Brexit high, GBP could see volatility in the weeks to come. The currency is likely to drop if the UK government maintains their hard stance on the EU trade negotiations. The GBP/EUR exchange rate sits at around the 0.86 level to start the week, but today’s UK Markit Manufacturing PMI for February could offer some brief respite for GBP if the figure improves.
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