GBP/EUR Exchange Rate Poised to Rally on Positive Brexit Developments

GBP/EUR Exchange Rate Steady as Formal Brexit Talks Resume

The Pound to Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as investors brace ahead of the latest round of Brexit trade talks.

At the time of writing the GBP/EUR exchange rate is trading at €1.1010, virtually unchanged from this morning’s opening rate.

Prospect of a Brexit Deal to Underpin the Pound (GBP) This Week?

The Pound (GBP) got off to a flying start this week, rocking higher on the back of reports suggesting a Brexit deal could be finalised by the end of the week.

While Sterling has given back a portion of these gains as subsequent headlines suggested that the two sides remained at odds over the UK government’s internal markets bill, observers remain confident that some meaningful progress can be found, even if talks have to continue right up to the deadline

Economists at MUFG Bank, write:

‘PM Johnson’s spokesman, James Slack stated yesterday that he expected talks to extend beyond this week and there is a chance now that talks could continue through to the EU summit.

‘If that’s what happens there is every chance that expectations could rise further of a deal being reached at the final hours of the EU summit as we have come to expect of EU summits. But comments like being in the ‘final stages of negotiations’ certainly paints a brighter picture of a deal being done and that hope could well extend GBP gains further this week.’

As such there appears to be plenty of upside potential in the Pound going forward.

Euro (EUR) to be undermined by Deflationary Pressure in Germany?

At the same time, the Euro’s (EUR) faces potential headwinds later this afternoon with the publication of Germany’s latest consumer price index (CPI).

September’s preliminary CPI figures are expected to show that Europe’s largest economy slipped back into a state of deflation, having previously stalled in August.

This raises the prospect of increased deflationary pressure across the Eurozone as well, with the bloc facing its second consecutive month of deflation in September.

The renewed threat of deflation is likely to prove a major headache for the European Central Bank (ECB), which has spent years and billions of Euros in an attempt to stoke inflation across the Eurozone.