Sterling approaches parity with the euro

GBP Weak as Brexit Concerns Return to Headlines The Pound was sold when United Kingdom markets opened on Monday, as investors reacted to news from the third round of Brexit negotiations taking place this week.

While Sterling was briefly boosted by acknowledgement from United Kingdom foreign secretary Boris Johnson that Britain had an obligation to pay a divorce bill, concerns continue to rise that negotiations are not going as smoothly as hoped.

Alexandra said: “The pound will likely remain under pressure over the coming weeks as the United Kingdom negotiates divorce terms with the EU”. Barnier asked United Kingdom officials to “start negotiating seriously”.

The pound has plunged in value against the world’s major currencies since last summer’s Brexit referendum.

This week, Brexit negotiations are likely to have an effect on both Sterling and the Euro too.

The report put together by lead United Kingdom economist, Martin Beck and Gaurav Saroliya notes that the decline in Sterling’s trade-weighted value with “no doubt” reflects domestic politics, but the majority of the fall was due to developments across the English Channel as economic data from the Eurozone had consistently been on the upside since the turn of the year.

More importantly, the Euro’s good start to the week as the result of Mario Draghi’s ability to avoid talking about monetary policy in too much detail at the recent Jackson Hole Synposium.

This indicated to markets that the Euro’s strength may not impact the bank’s monetary policy plans as much as some analysts feared.

As there had been rumours that Draghi would make an effort to talk down the strong Euro, markets read his silence on the shared currency as a hawkish signal, making the already strong Euro even more appealing. Employment and inflation were key reasons why the ECB’s (European Central Bank) stimulus package couldn’t be touched and why the ECB were in no position to raise interest rates. While Spain’s August inflation rate fell short of forecasts, the Eurozone’s August confidence surveys largely beat expectations.

“You’ve got two politically plagued currencies offsetting each other – you’ve got Brexit for sterling and you’ve got Trump and geopolitics for the dollar”, ING currency strategist Viraj Patel told Reuters.

August business confidence was forecast to improve from 1.04 to 1.06 but jumped to 1.09.

The final consumer confidence print for August came in at -1.5 as projected however.

GBP/EUR recovery could be limited if Brexit negotiations show no signs of improving, or if United Kingdom ecostats fall short of expectations.

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