After tumbling more than 1% during yesterday’s trading, the pound to euro exchange rate is once again on the rise, climbing 0.4 % during this morning’s trading as optimism around a trade deal increases.
Chief EU Brexit Negotiator Michel Barnier has reportedly told EU nation states that the UK is prepared to lower its demands for a larger portion of fish caught in UK waters from 80% to 60%. This follows comments from some EU leaders, including France’s Emmanuel Macron who threatened to collapse the talks unless the UK showed compromise.
Fisheries has been one of the barriers to progressing negotiations as both the UK and EU have resisted compromise after both making high demands in this key area. Another area of difference is the EU’s demand for a level playing field, which is significantly more important to the EU on an economic perspective. It is believed that significant progress has been made here and that the UK and EU are not far from agreement. The last point of difference is the role of governance and what jurisdiction the European Court of Justice (ECJ) may or may not have. The EU has long cited the ECJ as the ultimate dispute resolution, but the UK has resisted and suggested a mutual solution. Governance will be confirmed once everything else has been agreed so the main outstanding issue appears to be that of fisheries.
Where Next for Pound to Euro?
Simon Coveney, Ireland’s Foreign Minister, has said that a deal could be reached within a few days, paving the way for EU leaders to finally have something in front of them at next week’s summit. If a deal can be reached, then pound to euro will rise although the pound’s gains will likely be determined by the comprehensiveness of the deal.
It is likely the deal will involve zero tariffs on goods and other areas such as aviation will also be addressed. However, at this stage the deal could look relatively basic with add-ons later as the more difficult areas get resolved.
Goldman Sachs has forecast pound to euro rising to 1.15 in the event of deal being reached but has also said pound to euro could fall to parity in the event of no-deal. Only HSBC has bucked the trend, forecasting pound to euro to remain as it is in the event of a trade deal. HSBC has cited the UK’s economic exposure to coronavirus as one of the reasons for a weaker pound even on the back of a Brexit trade deal.
There is little doubt that Brexit trade negotiations will be the driving force behind the pound to euro exchange rate but the role out of the Pfizer vaccine in the UK could also help boost the pound. The pound has been heavily influenced by investor’s risk appetite and as the UK and global economies look towards returning towards some sense of normality, this could help the pound edge higher.
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