A bout of Pound volatility marked the triggering of Article 50 and the official start of the Brexit process.
Markets experienced fresh jitters as the two-year countdown to the UK’s exit from the EU began, with the ultimate outcome of the process still uncertain.
Early signs of disagreement over the order of negotiations – with Germany ruling out the possibility of discussing the future relationship before an exit deal is agreed – soon erased any Sterling gains.
If politicians on both sides of the Channel continue to express a hard line of rhetoric this could exacerbate worries over the likelihood of the UK facing an exit via the cliff edge.
However, with a large degree of Brexit uncertainty already priced into the Pound the downside potential of the GBP EUR exchange rate is somewhat limited.
There are still hopes that the Bank of England (BoE) could adopt a more hawkish outlook in the near future, even though poor wage growth remains a concern.
As Tim Riddell, research analyst at Westpac, noted:
‘The recent shift in BoE’s bias together with solid inflation and activity data saw a positive skew in sentiment towards GBP. The initial stances on Brexit negotiations will be critical in maintaining such a shift.’
If domestic data continues to hold up this could limit the bearishness of Sterling, even if political developments are likely to remain the key influence on sentiment.
Forecasts are not positive for March’s GfK consumer confidence survey and Nationwide housing price index, though.
Should signs point towards a weakening in consumer sentiment and spending this could increase the risks of a slowdown in domestic growth.
Confidence in the Euro, meanwhile, has been rather muted in spite of positive domestic data.
Although comments from members of the European Central Bank (ECB) executive board have been more hawkish in tone this failed to particularly boost the single currency.
Investors remain less than convinced that the ECB will begin tapering its quantitative easing program this year, offering support to the GBP EUR exchange rate.
As forecasts point towards a dip in the German consumer price index the Euro could come under increased pressure ahead of the weekend.
Any weakening in inflationary pressure within the Eurozone would reduce the odds of the ECB moving to tighten monetary policy.
On the other hand, if the data surprises to the upside this may encourage investors to pile back into the common currency.
Domestic political worries could continue to weigh on the Euro in the coming weeks, even though centrist French presidential candidate Emmanuel Macron still commands a solid lead in the polls.
Current GBP EUR Interbank Exchange Rates
At the time of writing, the Pound Euro exchange rate was trending narrowly around 1.15. Meanwhile, the Euro Pound exchange rate was on similarly muted form at 0.86.
