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EUR/GBP Likely to Drift Lower on Brexit, Catalan Talks

EUR/GBP Likely to Drift Lower on Brexit, Catalan Talks

2017-10-20 08:02:00
Nick Cawley, Strategist
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Talking Points

- Catalan talks over the weekend could see Spain take back control of the region, sparking further unrest.

- Any cessation of the recent Brexit stalemate could see GBP push higher.

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The recent upward move in EUR/GBP is likely to face a couple of barriers in the short-term as Spain looks to exert its authority over Catalan, while the latest Brexit dinner in Brussels may well have produced a more positive outcome, for both sides.

The Spanish government is set to activate Article 155 of the constitution over the weekend, effectively suspending Catalan’s autonomy and taking back control of the region. The unprecedented move is likely to force Catalan’s President Carles Puigdemont to officially declare Independence, setting the scene for more street protests and further unrest. And Spain will have to handle the internal problem on their own after EU Council President Donald Tusk recently said that, while he found the situation disturbing, “There is no room, no space for any kind of mediation or international initiative or action.”

And any kind of good news from Thursday’s EU Summit dinner, attended by UK PM Theresa May, is likely to boost GBP after a week in which EUR/GBP has come close to a five-week high. The latest talk around last night’s meeting is that the EU is expected to say that ‘sufficient progress’ has not been made yet to allow trade talks to commence, but that the EU are starting internal preparation for a comprehensive trade agreement with the UK.

GBP has slipped early Friday after Bank of England Deputy Governor Jon Cunliffe said that it was not clear if UK interest rates needed to rise in the short-term. Speaking to BBC Radio Wales, Cunliffe said that rates will need to rise slowly and gradually, but “when that process should actually start, I think is a more open question.”

Chart: EURGBP…..Timeframe (September 12 – October 20, 2017)

EUR/GBP Likely to Drift Lower on Brexit, Catalan Talks

Chart by IG

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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