EUR/GBP: Important issues to watch – Danske Bank

Morten Helt, Senior Analyst at Danske Bank, lists down the most important issues impacting the EUR/GBP pair.

Key Quotes

“Donald Trump seeks ‘special relationship’

− Donald Trump’s election as the next US president has been seen as a positive for the UK and the GBP as, according to the news media, Trump has told UK PM Theresa May that he wants to rekindle the kind of relationship Margaret Thatcher and Ronald Reagan shared in the1980s.

− Trump has previously praised Brexit and indicated the UK would be at the front of the queue when it comes to trade deals. Also, besides the direct positive economic effect of increased trade with the US and UK, a UK-US trade deal could also add pressure on the EU in relation to the Brexit negations, which at the end of the day might reduce the risk of a hard Brexit.

− While we still do not know much about Trump’s political plans, a closer economic relationship between the US and UK could to some extent mitigate the negative impact on the UK economy stemming from Brexit, which justifies are pricing of the Brexit risk premium.”

“High court says parliament – not government – can trigger Article50

− Brexit uncertainties got a new twist after the UK High Court on 3 November ruled that it is the parliament – not the government – that has the power to trigger Article 50.The UK government has said that it will appeal the verdict, which means we should get a final ruling from the Supreme Court in December.

− We still think Article 50 will be triggered eventually (although the triggering may be delayed past March). However, if the Supreme Court also concludes that the government cannot trigger Article 50 and that parliament will be more involved in the negotiation process, a ‘softer’ Brexit has become more likely, as the majority of members of parliament have a pro-EU stance and voted for remain.”