GBP/EUR: Pound Drops As Boris Faces Hunt In Final Stage Of Leadership Battle

The British pound is narrowly lower against the euro on Monday afternoon after comments from the UK Chancellor of the Exchequer Sajid Javid ignited concerns over Brexit. Interest rate decisions in the Eurozone this week and the United Kingdom next week are bearing on the exchange rate of the two economies. More broadly, markets are quiet on Monday with Wall Street taking a holiday to celebrate Martin Luther King Jr’s birthday.

GBP/EUR was lower by 11 pips (-0.5%) at 1.1715 with a daily price range of 1.169-1.173 as of 1pm GMT, putting the currency pair in the middle of its 5-day price range.

The pound

The British pound opened lower after comments over the weekend from Chancellor Sajid Javid on Brexit. Mr Javid warned manufacturers that the Treasury would not support manufacturers because they have had three years to prepare for a new trading relationship.

The UK Chancellor said, in an interview with the Financial Times:

“There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union – and we will do this by the end of the year.” He added: “There will be an impact on business one way or the other, some will benefit, some won’t.”

The idea that there will be in effect, some winners and some losers from Brexit is a fresh admission from the Boris Johnson government, which is typically very upbeat on the prospects for the UK after leaving the European Union. The pound later recouped much of the early losses with most currency pairs trading in a sideways range during the MLK holiday in the United States.

The euro

Some better than expected economic data in Germany added to the early euro gains, though these too were mostly unwound as the day went on. The Producer Price Index (PPI) for Germany in December saw prices fall at -0.2%, a slower pace than the -0.6% expected or the -0.7% seen the prior month. Later today (18.30 GMT), ECB President Christine Lagarde will give a speech which will receive extra scrutiny ahead of the ECB meeting to decide monetary policy on Thursday.


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