The Euro Pound (EUR GBP) exchange rate briefly spiked this morning following reports that the UK would have to foot a €100bn ‘divorce’ bill for leaving the EU.
According to the Financial Times, the European Union is expected to demand this much from the UK in Brexit negotiations in order for the UK to uphold its commitments made to the Union before it voted to leave.
This is nearly double the previous estimate of €60bn and led Brexit Secretary David Davis to claim this morning that the UK would ‘not pay €100bn divorce bill’.
But with European Commission President Jean-Claude Juncker reportedly telling Prime Minister Theresa May that there could be no discussion of a future trade agreement until after the matters of EU citizens rights in the UK and the ‘divorce’ bill were settled, the Brexit Secretary’s stance could lead to the stalling of talks before they even begin.
However the Pound strengthened again this morning as the UK released a better than expected Construction PMI.
IHS Markit reported that the UK’s construction sector grew from 52.2 to 53.1 last month, reaching its highest level in 2017 and beating expectations that it would slide to 52.0.
The jump was buoyed by rising activity on civil engineering projects and strong demand for new residential properties, although a number of firms remained concerned about how Brexit could affect their sector.
Max Jones of Lloyds Bank Commercial Banking said;
‘Another worry is skills and the fears over future access to EU workers, on which the UK construction industry is so reliant. Here, firms are continuing to use joint ventures to spread risk, share labour resources and ensure the best possible teams are available for the job.’
Sterling’s advance proved to be short lived however as the release of the Eurozone’s latest GDP report saw EUR GBP hold steady.
Growth in the bloc rose from 0.4% to 0.5% during the first quarter, in line with market expectations and supported by strong economic growth in Austria, Spain and Belgium, with the upbeat data suggesting that the European Economy has largely shaken off fears of political instability.
Looking ahead, the EUR GBP exchange rate may strengthen again tomorrow if the Eurozone’s Retail Sales figures rose from 1.8% to 2.1% in March as expected, although a number of speeches by European Central Bank (ECB) policy makers could mute the Euro’s gains if they maintain a dovish outlook towards future monetary policy.
Meanwhile the Pound may be weakened by the release of the UK’s latest Services PMI on Thursday, with economists forecasting that growth in the private sector will slow from 55 to 54.5 in April despite the boost from Easter, although should it mirror the performance of the Manufacturing and Construction PMI earlier in the week then Sterling may rise instead.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.84 and the GBP EUR exchange rate was trending around 1.18.
