The Pound Euro (GBP EUR) exchange rate steadied on Thursday as UK Prime Minister Theresa May and her cabinet hurried to solve the Irish border impasse before Friday.
Barnier Warns of 48 Hour Deadline for Brexit Deal, GBP EUR Exchange Rate Climbs
Michel Barnier, the EU’s Chief Brexit Negotiator, has told member states that London must agree a deal on the Irish border before Friday or negotiations will not move onto the next stage in December.
Barnier asserted that Downing Street has informed him that a solution is now being worked out – a resolution that could potentially satisfy the Irish Democratic Unionist Party (DUP) as well as the Republic of Ireland – although it still needs to be signed off.
If a deal isn’t struck before next week’s EU summit, it may be ruled that insufficient progress has been made, preventing the UK from moving on to trade talks.
This would also raise the possibility that discussions on the transitional deal may be delayed until after the EU council summit in March 2018 – by which time key business decisions regarding things like location and investment will have already been made.
This is the crux of market concerns for the Pound, as business uncertainty has thus far limited investment and caused apprehension regarding the future of the UK’s economy.
Nonetheless, the possibility that May will soon offer a fresh Brexit deal as a result of the imminent deadline has given markets some hope and driven the GBP EUR exchange rate higher in the process.
Eurozone Data Disappoints, GBP EUR Exchange Rate Capitalises
The Euro floundered on Thursday morning, limited by a disappointing decline in German industrial production and on-forecast economic growth.
The Eurozone’s economy expanded 0.6% on the quarter in the three months to September, in-line with estimates but down from the previous period’s 0.7% expansion.
Growth was mostly due to strong household consumption, exports and fixed investment, though easing GDP growth in France and Spain ultimately dragged on the figure, counteracting increases in Germany and Italy.
Meanwhile, industrial production in Germany fell by -1.4% month-on-month in October, following the previous month’s -0.9% drop and printing well below the forecasts for a 2.2% rise.
This marked the biggest decline in industrial output for Germany since December last year, with production falling in all industrial sectors except that of energy.
The figures helped the Pound to Euro (GBP/EUR) exchange rate gains.
The relative strength of the US Dollar (USD) also continues to limit the upward potential of the Euro.
GBP EUR Forecast: Markets Expect New UK Deal in 24 Hours
The outlook for the Pound Euro (GBP/EUR) exchange rate is mixed.
While the imminent deadline may prompt London to push hard and fast for a deal, Arlene Foster, leader of the DUP, has made clear that she will not compromise on the issue of the Irish border.
There remains the possibility, therefore, that no deal will be struck before the weekend.
This would delay talks over the Christmas period and essentially force UK businesses to make investment decisions for 2018 in the dark, an outcome that will likely curb demand for the Pound.