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Has EUR/GBP and Forex Market Been Affected by Recent Brexit Talks?

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How Has the EUR/GBP and the Forex Market Been Affected by Recent Brexit Talks?

While the notion of Brexit has always created a sense of dread and unease among businesses, the way in which negotiations have stalled has exacerbated these concerns.

With the latest draft of a parliamentary resolution lamenting the failure of initial talks to resolve key issues (such as the rights of EU and UK citizens living abroad), the business community is becoming increasingly agitated and urging participants to work harder to make progress.

This is also impacting on the forex market too, although surprisingly it is the Euro (EUR) that is currently bearing the brunt rather than the GBP (pound). Here's why:

How the EUR/GBP is Set to Decline to 0.8743

Since the EU referendum vote was counted in June last year, the pound has continued to trade in an increasingly narrow range against the Euro and the U.S. Dollar (USD). This is a trend that has begun to reverse during the last financial quarter, however, with the GBP even emerging as the best-performing major currency on the back of recent data releases.

More specifically, the EUR/GBP exchange rate was pushing below the 50-day moving average towards the end of last week, as the UK reported better-than-expected inflation data for August. As headline inflation rose to 2.9% in August to beat the average forecast of 2.8%, the chances of the Bank of England (BoE) raising interest rates at the next policy meeting in October rose significantly. This has contributed heavily to the revival of the pound, particularly as the U.S. has been hit by natural disasters and Europe has also experienced a period of economic contraction.

These figures have continued a more general trend for EUR/GBP, with the pound continuing to become increasingly bullish against the Euro. Some of this can also be attributed to the attitudes of EU stalwarts Mr. Juncker and Mr. Barnier, whose posturing and continued level of antagonism towards the UK is thought to be harming the European economy rather than the performance of the UK. This is certainly driving down negative sentiment in the European markets and economy, while it has also contributed to the depreciation of the Euro.

The Last Word

As anyone with experience of forex trading will testify, the decline of one currency at the expense of another does in no way prevent investors from profiting. In fact, it can create far greater levels of liquidity within the marketplace, so traders with a healthy appetite for risk may look to hedge against the Euro and open up short-term positions that can capitalise on the most recent trends.

Just be watchful, however, as the unpredictable nature of Brexit negotiations means that the market can turn at any point in the near-term future.