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Euro Gains on Pound Amid Brexit Uncertainty

Easing Catalan Tensions Benefit Euro

Markets were relieved after Catalan president Carles Puigdemont stopped short of making a unilateral declaration of independence.

As Puigdemont also expressed a willingness to enter dialogue with the Spanish government the mood towards the Euro improved further.

However, the response from Madrid was rather more lacklustre and suggests that the Catalan crisis still has some way to run.

Even so, the GBP/EUR exchange rate remained under pressure on Wednesday in the absence of any particularly supportive UK data.

Comments from Chancellor of the Exchequer Philip Hammond did not offer much cause for confidence, meanwhile, as he warned of the possibility of a ‘bad-tempered’ Brexit.

With the Conservative government still lacking any cohesive approach to the issue of Brexit, this naturally weighed heavily on the Pound.

As hopes for any significant breakthrough at the latest round of Brexit negotiations also faded there was little reason for investors to support Sterling yesterday.

Euro Outlook: Strong Industrial Production to Boost Confidence

Forecasts point towards a solid uptick in Eurozone industrial production on the month in August, which could offer further support to EUR exchange rates.

If the domestic economy continues to demonstrate solid signs of growth then the downside potential of the Euro is likely to remain limited.

Even so, any fresh developments in the Catalan situation have the potential to weigh on the single currency if Spain continues to adopt a hard-line approach.

Commentary from European Central Bank (ECB) President Mario Draghi will also be in focus today, with markets looking for any indication that the central bank is moving towards a tightening bias.

On the other hand, the Pound is likely to remain on a softer footing as this month’s round of Brexit negotiations end.

Unless there are signs that the two sides are moving towards an agreement on key issues, the GBP/EUR exchange rate could extend its slump further.

Key Events

12th October

09:30 Bank of England Credit Conditions Survey

10:00 Eurozone Industrial Production

15:30 ECB President Draghi participates in panel in Washington


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James Baxter

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