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Brexit negotiations continue into Round Three

The speed of negotiating by the UK Government seems to be frustrating the EU negotiating team. David Davis has asked for “flexibility and imagination”, but the EU are standing firm on clarity on three points: the rights of citizens, the divorce bill and the border with Ireland.The European Union President, Mr Juncker, has said there is no chance of trade talks beginning until financial settlement has been agreed. Theresa May has said “The talks this week are technical, before we move on to more substantive talks in September”. At the moment the two sides are struggling to find anything to agree on.

All of this posturing has created a lot of uncertainty for the British Pound and pushed it to eight year lows against the Euro. There seem to be a lot of negatives built into the current GBPEUR exchange rate, and it would appear that it would take a lot of UK bad news to push the exchange rate substantially lower. Morgan Stanley has mentioned parity of the currency pair for early 2018, and this is looking at inflows into the Euro, more than a concerted selling of GBPEUR. Most analysts seem to think that most bad news has been built into the current low valuation.

So is this hidden good news for Sterling? Certainly a bit of temporary relief looks on the cards, and if some better than expected data comes from the UK, GBPEUR could go back to levels seen before the summer. The problem is, with Brexit and all the unknowns associated with the process and the ultimate settlement Sterling will always be susceptible to bouts of selling.The speed of negotiating by the UK Government seems to be frustrating the EU negotiating team. David Davis has asked for “flexibility and imagination”, but the EU are standing firm on clarity on three points: the rights of citizens, the divorce bill and the border with Ireland.The European Union President, Mr Juncker, has said there is no chance of trade talks beginning until financial settlement has been agreed. Theresa May has said “The talks this week are technical, before we move on to more substantive talks in September”. At the moment the two sides are struggling to find anything to agree on.

All of this posturing has created a lot of uncertainty for the British Pound and pushed it to eight year lows against the Euro. There seem to be a lot of negatives built into the current GBPEUR exchange rate, and it would appear that it would take a lot of UK bad news to push the exchange rate substantially lower. Morgan Stanley has mentioned parity of the currency pair for early 2018, and this is looking at inflows into the Euro, more than a concerted selling of GBPEUR. Most analysts seem to think that most bad news has been built into the current low valuation.

So is this hidden good news for Sterling? Certainly a bit of temporary relief looks on the cards, and if some better than expected data comes from the UK, GBPEUR could go back to levels seen before the summer. The problem is, with Brexit and all the unknowns associated with the process and the ultimate settlement Sterling will always be susceptible to bouts of selling.

 

This article was written on behalf of Golden Leaves

 

Please contact Haylee for currency advice on 966 493 082 or email info@goldenleavesinternational.com

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