Theresa May made a speech at the beginning of March as part of the ‘Road to Brexit’ series of talks, where she confirmed that she will continue to demand a bespoke Brexit deal for the UK. Her speech was relatively well received, however didn’t have as much of an impact on GBP/EUR rates as had been hoped, partly due to the speech being leaked to the press in the morning before. Trade discussions are expected to begin at the end of March, however the UK and EU continue to clash over the UK receiving a bespoke deal, while the EU refuse to let the UK cherry pick which benefits they want to keep. The main question now is, will the discussions move forward to trade talks at the end of March as expected? And what would the consequences be for the Pound if no deal is agreed?
There have been some excellent reports on the UK economy from the last month, with UK productivity growing at the fastest pace in the second half of 2017, and UK government borrowing recorded at the lowest levels for the financial year to date, both since the financial crisis. However one topic to keep a close eye on which I expect to be a key mover for GBP/EUR exchange rates is the matter of UK unemployment. This unexpectedly rose in the last quarter of 2017, and with retail sales also being hit with the likes of Toys R Us, Prezzo, and Maplin all making closures across the UK, unemployment rates could be at risk of rising rapidly. The next Unemployment figures are due on 21st March and Retail Sales expected on 22nd March, therefore it may be worth making plans ahead of these releases. Both of these data sets are key to deciding on Monetary Policy for the months ahead, so if these releases are worse than expected, this could be a sign that the Bank of England will not be raising Interest Rates in the near future, which would almost certainly result in Sterling weakness.