The EUR GBP exchange rate stole the lead on Friday morning as markets reacted to news that the UK’s Brexit committee has grown doubtful about reaching a solution over the Irish border situation.
Irish Border Conundrum Continues to Conflagrate Committee, EUR GBP Exchanges Higher
An influential group of MP’s analysing the Brexit negotiation process have shared a pessimistic outlook regarding the Irish border issue, claiming that it is not possible to see how it will be resolved after Brexit.
The UK government wants no hard border between Northern Ireland and the Irish Republic, as well as no customs border between the former and the rest of the UK.
Whilst some have suggested a technological solution to the issue, such as pre-scanning goods to eliminate the need for custom checks at the border, Ireland’s Foreign Minister Simon Coveney has since told reporters that Ireland ‘can’t be asked to leap into the dark’, and simply accept UK promises.
‘What the British government has been asking of the Irish government is ‘just trust us we’ll solve these issues with a broad bold trade agreement. But that may not be possible, we don’t know’.
As a result of the uncertainty the committee is asking the government to set these ideas out in more detail, but with time ticking before the mid-December summit in Brussels, markets are now increasingly worried that a deal will not be made in time.
This outlook cut short the Pound’s rally, leaving EUR GBP recovering from its recent lows.
In other news, manufacturing in the UK is progressing positively according to the latest Markit manufacturing PMI, which rose from 56.6 to 58.2 in November and beat the forecast of a contraction to 56.5.
Whilst this news was notably positive, it was not enough to successfully buoy Sterling.
Eurozone Manufacturing has Best Month in 17 Years, Euro (EUR) Exchange Rates Climb
Eurozone factories had their busiest month in some 17 years in November, with a broad-based acceleration demonstrated in the latest Markit purchasing managers’ index (PMI).
The forward looking indicator pointed to continued gains in momentum through the end of this year by printing at 60.1, up from the previous and forecast readings of 60.0.
Chris Williamson, Chief Business Economist IHS Markit shared his thoughts:
‘November’s surveys produced a clean sheet of improved PMI readings for all countries, resulting in the best performance of Eurozone manufacturing since the height of the dot-com boom’.
Amongst the readings, new orders climbed, backlogs of work built to a record pace and the headcount massively increased – surprisingly all despite firms increasing prices.
This news helped bolster the Euro today, even with yesterday’s limp core inflation print of 0.9%.
Euro Pound (EUR/GBP) Exchange Rate Forecast: Brexit Summit in Spotlight
The forecast for the Euro Pound exchange rate hinges massively on the outcome of Monday’s meeting in Brussels with UK Prime Minister Theresa May and President of the European Commission Jean-Claude Juncker.
This meeting is being regarded by many as ‘crunch time’, as May is expected to present the UK’s position on key subjects like the divorce bill and the Irish border issue to Juncker.
On the 6th of December Ambassadors from the EU will meet and draft conclusions regarding this phase of negotiations to be announced at the December summit, if the meeting was successful we could see the initiation of trade negotiations and a very likely surge in demand for the Pound.
If, however, London’s proposals are not met with agreement, then further delays will be announced over the Christmas period and the Euro will likely retain its lead.