The UK (and of course US President Trump) have grabbed the headlines in the past 24 hours. British Prime Minister May acknowledged that with time running short to finding a solution to the Irish border issue the UK may have to stay in its post-EU “transition” phase beyond the agreed 31 December 2020. This climbdown by the leader of the ruling Conservative Party was seemingly well received by EU officials, less so by Mrs May’s members of the cabinet and parliament back home.
Moreover, a European Council meeting which had been pencilled in for mid-November – the deadline for both sides to reach a deal – has reportedly been shelved. UK negotiators are on the back foot and it remains unclear what kind of deal, if any, they will be able to present to parliament in coming weeks. Add to the mix weak (and weaker-than-expected) UK CPI-inflation and retail sales numbers and unsurprisingly Sterling is down about 0.4% since Wednesday.
But it is the Euro which has stolen the limelight in the past week, for all the wrong reasons, having weakened about 0.8% to a two-month low in trade-weighted terms. The finger is being pointed at the Italian government’s draft 2019 budget which has irked the European Commission for effectively being too loose. However, as European crises go, this is pretty tame stuff and the causes behind the Euro’s ongoing weakening may well be broader and more complex. Modest Eurozone growth and inflation is clearly muting the Euro’s attractiveness and the ongoing Brexit saga may well be starting to feed through the single currency, even if the UK (and Sterling) arguably have the most to lose.
