Euro And Pound Sterling Flip-Flops On Brexit Talks

Theresa May_Brexit_Negotiations_1906

 

The common currency was seen giving up more than half the gains made last week as price action in EUR/GBP was bearish. Closing at 0.8892 on Friday, EUR/GBP, however, remains supported above 0.8837 level of support.

The gains in the euro came about as the Brexit talks continued but with no significant progress made. The euro initially rose last week after Michel Barnier, the EU’s Brexit chief negotiator said that “no great steps forward” were made in reference to the Brexit talks.

However, by Friday the trend changed as reports emerged in a German newspaper that the EU leaders were preparing a two-year transition deal and went as far as to announce that the decision could be made official at the EU summit this December.

The euro was also under pressure after Draghi’s speech at the Peterson Institute for International Economics. Draghi did not offer much insight but said that the ECB would take a cautious approach to unwinding its QE program. This is expected to begin around the first quarter of 2018, but no set timeframe was given in this regards.

EUR/GBP pivotal on Brexit and monetary policy

The EURGBP remains at the core of the Brexit talks as well as the monetary policies from both the ECB and the Bank of England. While it has been well documented about the speculative rally in the euro since June this year on the prospects of a QE tapering, the rally in the British pound has remained rather choppy.

As economic conditions in the eurozone continue to improve and with the Bundesbank’s latest report suggesting further growth momentum in the region’s largest economy, the justification for tightening of monetary policy weighs on the ECB.

While officials stay tight-lipped, the October ECB meeting that is due in a week’s time could prove to be key for the euro in the near term. At the September meeting, the ECB postponed the tapering announcement noting that a decision could be taken in October.

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