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Euro to Pound Rate Appreciates despite Spanish Civil Issues

The Euro has ticked higher against the Pound on Friday’s afternoon session, following growing UK political tension. In the EUR/GBP pairing, this has been equivalent to a rise to 0.8985.

As well as two MPs calling for Theresa May to be replaced, the Pound has been further weakened by a similar call from a high-profile Conservative donor.

Pimlico Plumbers Managing Director Charlie Mullins said succinctly of May that;

‘She needs to chuck the towel in’.

(First published October 6th, 2017)

A weak Pound has enabled a EUR GBP rise today, which could crumble on Monday if the Catalonian government acts.

  • EUR GBP rate rises to 0.8964 – GBP EUR rate drops to 1.1153
  • Euro trades higher on weak Pound – German factory stats beat forecasts
  • Pound slides on Conservative issues – Stats bodies highlight poor UK production
  • Catalan independence bid in focus – UK trade measure due next week

On Thursday, the Euro rose against the Pound from a starting rate of 0.8884 to close at 0.8935.

Euro Appreciates despite Underlying Eurozone Issues

The Euro has made significant gains against the Pound today, rising by 0.4% in the pairing. While this has been good news on the face of it, the Euro has struggled elsewhere due to persistent trader concerns.

Today’s good Eurozone news has been that German factory orders have risen sharply in August. During the month, a recovery from -0.4% to 3.6% has been seen, instead of the forecast 0.7%.

Limiting factors elsewhere have been continued German coalition talks and uncertainty about future European Central Bank (ECB) policy.

Pound Loses Ground on Production Concerns and Government Worries

On the surface, the Pound has slipped because of fears about a Conservative Party leadership election.

This would throw the party into a lurch because no clear contenders have emerged yet. In addition, with Brexit talks ongoing it would suggest a fractured government to EU negotiators.

Under the surface, there have been additional concerns that UK productivity has been misreported for years. This implies that there are reduced funds available to Chancellor Philip Hammond in the November budget, which could severely limit his available actions.

Looking at the issue in detail has been Mike Cherry, National Chairman of the Federation of Small Businesses (FSB). Cherry has said;

‘It’s troubling to see sluggish productivity serving as such a persistent barrier to UK growth. The Chancellor must intervene to stop the productivity rot at the Autumn Budget.

It’s particularly striking to see manufacturers, often touted as the great beneficiaries of a weakened Pound post-Brexit, seeing such a marked fall in output per hour.

Small firms need greater clarity about the future. More than seven in 10 are not expecting to increase investment over the coming quarter. It’s hard to blame them when guarantees about a post-Brexit transition period and the future of EU workers have not been forthcoming’.

According to Office of Budget Responsibility (OBR) data, forecasts have been over-egged for around 7 years, providing a highly inaccurate picture of UK productivity.

EUR GBP Forecast: Will Spanish Government Crack Down on Catalonia?

Looking to the coming week, the Euro could face high turbulence as early as Monday.

This follows the recent vote for independence in Catalonia, which the Spanish government attempted to block through police force.

Since then, Spain’s constitutional court has blocked a Catalonian parliament session on Monday, during which Catalonian officials were due to declare independence.

While holding this session would be considered illegal, it is not out of the question that the meeting will be held anyway. Catalonia’s Foreign Minister, Raul Romeva, has defiantly stated that;

‘Parliament will discuss; parliament will meet. It will be a debate and this is important’.

If the Catalonian government does hold a meeting on Monday and voice supposed independence, the Euro could plummet because of the unrest and uncertainty such a statement would generate.

The next UK data to watch out for will be a trade balance measure on Tuesday. If the UK moves closer to a surplus then the Pound could appreciate, although historically the trade deficit has remained consistently large over the past 10 years.

Current Interbank EUR GBP Exchange Rates

At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.8964 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.1153.