Mounting hope that the Brexit Irish border issue can be resolved before tomorrow’s deadline has seen the Euro fall against Pound Sterling.
The EUR GBP exchange rate is also under additional pressure from a largely-disappointing run of Eurozone data this morning.
The pairing has slumped -0.3% to 0.8787.
Disappointing Eurozone Data Weakens Euro (EUR) Exchange Rates
Ecostats released this morning have taken the edge off recent figures showing the rosy state of the Eurozone economy.
German industrial production posted a surprise contraction of -1.4% in October; an acceleration on the -0.9% decline seen in September and well away from the 1% growth economists had expected.
Year-on-year, production has risen 2.7%, against predictions of an uptick from the upwardly-revised 4.1% to 4.3%.
Third-quarter figures for the Eurozone show that both government expenditure and household consumption underperformed expectations.
Fiscal expenditure slowed from 0.5% to 0.2% instead of the anticipated 0.3%, while household consumption growth fell from 0.5% to 0.3% instead of to 0.4%.
This bodes ill for the outlook on Eurozone monetary policy, as European Central Bank (ECB) President Mario Draghi has consistently warned that governments need to increase their spending in order to help aid the economic recovery.
Signs of slowing household consumption will also resonate poorly with the ECB and will be interpreted as justification for the Governing Council’s view that substantial monetary stimulus is still necessary.
Pound (GBP) Climbs as Hopes Build that UK Government can Break Irish Border Deadlock
Brexit continues to weigh on Pound Sterling today, with EU officials having given the UK government until tomorrow afternoon to agree a preliminary deal covering the divorce bill, Irish border and EU citizen’s rights post-Brexit.
EU member states warned chief negotiator Michel Barnier that there would not be time for national parliaments to scrutinise any agreement made later than Friday ahead of the European Council meeting next week.
The European Council must approve the progression of negotiations onto the issue of trade at the next meeting or this will have to wait until February or March next year.
However, with Irish Prime Minister Leo Varadkar refusing to soften his position that there be no hard border and Northern Ireland’s DUP refusing to back a deal that leaves NI under a different regulatory framework to the rest of the UK, Theresa May could be stuck between a rock and a hard place.
May is additionally facing mounting support from Brexit-supporting Conservatives over the government’s concessions on Monday that would have allowed Northern Ireland to retain ‘regulatory alignment’ with the Republic, essentially operating on parallel legislation that would keep it in line with single market regulations.
News that the UK government is expected to show the Irish government new text on a border deal within 24 hours has cheered markets, with investors hoping this new agreement will be enough to break the current deadlock.
ECB Draghi to Cause Volatility for Euro Pound Sterling (EUR GBP) Exchange Rate?
ECB President Mario Draghi is hosting a conference in Frankfurt this afternoon; any comments from him on monetary policy are sure to flutter the Euro.
Otherwise we have to wait until tomorrow for the next bout of data.
Eurozone figures are largely considered low-impact, apart from October’s German trade balance, which is expected to see a narrowing trade surplus to a still-impressive €21.9 billion.
However, the US non-farm payrolls report could cause volatility for the common currency, as this is one of the most influential releases on the calendar.
A strong result would push the Euro lower as the US Dollar weakens, while EUR could gain a boost if a poor NFP reading sends USD tanking.
An estimate of inflation for the next 12 months, released by the Bank of England (BoE) and TNS will join industrial, manufacturing and construction reports and trade balance data for October being released at 09.30.
In the afternoon, the National Institute for Economic and Social Research (NIESR) will release its GDP estimate for November.
Economists expect NIESR to conclude that the UK economy slowed from October’s uptick to 0.5%, to record growth of 0.4% last month.