The pound has held close to opening levels against the euro today, with a mixed outlook from the International Monetary Fund (IMF) lowering GBP trader confidence.
Despite the limited movement, the pound euro pairing has still hit an interbank exchange rate of €1.139 which is close to its best rate since June.
IMF officials have explicitly warned that slow Brexit progress could harm UK and Eurozone economic growth.
The report read: “The possible failure of Brexit negotiations poses another risk.
“An intensification of trade tensions and the associated further rise in policy uncertainty could dent business and financial market sentiment, trigger financial market volatility, and slow investment and trade.”
Among other IMF news today, the organisation has also released pessimistic UK growth forecasts for 2018 and 2019.
This year is expected to see UK GDP growth average at 1.4 per cent, while growth of 1.5 per cent is anticipated in 2019; 2017 saw growth of 1.7 per cent.
IMF officials have also suggested that the Bank of England (BoE) should exercise caution regarding raising interest rates, which opens the door to a potential rate cut in the future.
They said: “In the United Kingdom, where the output gap is closed and unemployment is low, a modest tightening of monetary policy may be warranted.
“[However], at a time of heightened uncertainty, monetary policy should remain flexible in response to changing conditions associated with the Brexit negotiations.”
Perhaps adding to Theresa May’s recent declaration that ‘austerity is over’, IMF officials have backed increased spending – although this recommendation may not tally with the long term goals of the Treasury or Chancellor Philip Hammond.
On the other side of the currency pairing, the euro has been steady against the pound following the news that Germany’s trade balance rose in August.
The basic and seasonally-adjusted surplus figures both grew during the month, although the base figure did not rise by as much as forecast, and both imports and exports fell into negative territory over the period.
The shift from €16.5bn to €17.2bn still leaves Germany with an enviable trade surplus, but by printing below forecasts it hasn’t triggered a euro to pound exchange rate rally.
The pound might appreciate when Bank of England (BoE) policymaker Ben Broadbent speaks this afternoon, provided he backs higher UK interest rates in 2019.
The more important UK news is Wednesday morning’s GDP reading, which is anticipated to show a potentially pound-weakening slide from 0.3 per cent growth to 0.1 per cent.
The next major Eurozone data to watch out for will be Thursday’s release of European Central Bank (ECB) meeting accounts.
If these accounts reveal that ECB policymakers could be planning to raise interest rates next year then the euro could rally against the pound.
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