AFTER a fairly volatile day of trade, the pound is punching higher against the euro this morning following reports the UK could be offered a two-year Brexit transitional agreement.
GBP/EUR is currently at around €1.124, up around 0.35 per cent from its starting levels this morning and over a cent higher than the low of €1.109 struck yesterday.
Sterling continues to tear higher against the euro this morning after a report in Germany’s Handelsblatt newspaper late yesterday afternoon indicated that the EU may be willing to offer the UK a two-year transitional deal.
The two-year deal would see the UK remain part of the single market and customs union after the conclusion of Brexit negotiations, helping dampen the shock to British businesses and granting more time for a new UK-EU trade deal to be negotiated if needed.
Such a deal would be reliant upon the UK settling its financial obligations with the EU, an issue that has reportedly caused a “deadlock” in Brexit talks between the UK and the EU and prompted the pound’s brief tumble late yesterday morning.
However an internal EU draft document seen by the media suggests that the while progress is slow on this front the EU is confident that the issue of the UK’s divorce bill could be resolved by December, also opening the way for trade talks to finally get underway.
Meanwhile, while the euro has fallen back at the start of today’s session, analysts suggest that the currency could still see a resurgence later today if US inflation figures fail to impress in the afternoon.
Looking ahead to next week a lot of focus is likely to be placed on the UK’s latest CPI report on Tuesday with the GBP/EUR exchange rate likely to strike higher if inflation rises in September as expected.
Next week’s inflation data is seen as particularly important by markets as it will be the final reading ahead of November’s rate decision by the Bank of England (BoE), with economists predicting that another rise in inflation will place even more pressure on the bank to raise interest rates next month.
Meanwhile, the euro may also be strengthened on Tuesday as ZEW releases its latest German economic sentiment index, with analysts forecasting that it will have climbed from 17 to 19.5 in October on the back of recent strong economic growth.