Wednesday September 13, 2017 - 11:44:29 GMT
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Brexit Talks and the Relationship Between the GBP and the EUR
In any relationship, breaking up is often the hardest part. This is bad enough with standard separations, but imagine the hardship that can ensue if terms of your break-up are unclear and can take two years or more to be determined?
These are the circumstances surrounding Brexit, as the UK continues to pursue and negotiation a split from its European comrades. As you can imagine, this has had a hugely detrimental impact on the European economy, while it also continues to dictate the relationship that exists between the pound (GBP) and the Euro (EUR).
So how exactly does the land lie at moment, and how have recent events impacted in the GBP/EUR?
Why the Initial Success of the Repeal Bill Has Boosted the Pound
Most recently, the government fired its opening salvo to extract the UK from EU law, as the House of Commons voted on a proposed repeal bill. Under the terms of this legislation, EU laws will transferred into domestic statute, creating a transitional period that will avoid legal complications and ease the process of regaining sovereignty. From here, ministers can look to repeal laws at their leisure, returning power to local governments and shifting the balance of power back to UK regulators.
MP's marginally backed the so-called EU Withdrawal Bill by 326 votes to 290, despite claims from the Labour Party that the vote represented little more than a “power grab” by ministers.
This result was widely anticipated by experts, as sterling sentiment rose ahead of the vote and lifted the GBP/EUR to around €1.097. This was a cent higher than last weeks' lows, while the pound soared even higher once the votes had been tallied and it was revealed that the UK could at least look forward to a managed period of transition. The rise of the pound was also compounded by the fact that they EUR weakened slightly as Italy's manufacturing output slowed, falling from 1.1% to 0.1% in July.
This was impactful, particularly given Italy's status as the largest economy in the Eurozone and the fluctuating nature of its economic performance of late.
The Last Word
As wealth management firms such as GAM will testify, investing in currency can be challenging at the best of times. The GBP has certainly fluctuated wildly in recent times, while continuing to trade in a narrow and restricted range.
While it has largely lost ground to the EUR in recent times, however, it has rebounded well over the last three months and is currently performing robustly against the single currency and the U.S. Dollar. Whether this lasts is anyone's guess, but the GBP/EUR is likely to endure an increasingly strained relationship in the months (and maybe year) ahead.
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