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Euro Pound Sterling (EUR/GBP) Exchange Rate Eases as EU’s Brexit Negotiator Says No Backstop is ‘Unacceptable’

Pound to Euro Exchange Rate bank notes

EUR/GBP Exchange Rate Rises despite Rising Expectations of ECB Stimulus

The Euro Pound (EUR/GBP) exchange rate rose by 0.1% today, leaving the pairing fluctuating around £0.8931.

The Euro (EUR) edged higher against the Pound (GBP) despite the European Central Bank’s President, Mario Draghi, indicated that the central bank could go ahead with stimulus measures as early as September.

Claus Vistesen, the Chief Eurozone Economist at Pantheon Macroeconomics, said:

‘We are very confident that today’s message from the central bank is that they’ll do more [to stimulate the economy]. In effect, Mr. Draghi’s comments today can be summed up in the shift from the idea that the ECB is “committed to act” to the position that it is now “determined to act”.’

Today also saw the publication of the German IFO business confidence figures for July, which fell below forecasts, easing from 97.5 to 95.7.

The IFO institute stated:

‘Companies were less satisfied with their current business situation and are also looking ahead with increased scepticism.’

EUR/GBP Exchange Rate Falls as Barnier Calls the Removal of Irish Backstop ‘Unacceptable’

The Pound (GBP) dipped against the Euro (EUR) following the news that Michel Barnier, the EU’s Chief Brexit Negotiator, had written to EU member states saying that Boris Johnson’s plan to call for the removal of the Northern Irish backstop is ‘unacceptable’.

Leo Varadkar, the Irish Taoiseach, added:

‘The backstop is an integral part of the withdrawal agreement; without the backstop there is no withdrawal agreement… I hope that the new UK prime minister has not chosen no deal, but that will be up to them.’

This has left Sterling traders feeling jittery as Boris Johnson’s cabinet is taking a concern turn towards a no-deal Brexit, with many of its members being previously involved in the Leave campaign.

Nick Boles, the Former Tory MP, said:

‘They are basically turning themselves into the Brexit party in order to hold off Nigel Farage.’

EUR/GBP Outlook: Could Sterling Recover on Renewed Brexit Discussions?

Euro traders will be looking ahead to tomorrow’s French producer prices figures for June.

Sterling investors, meanwhile, will be focusing on developments surrounding Brexit and Boris Johnson.

However, some analysts are speculating that the Pound could begin to rise as the UK Government quickly turns its sights back onto Brexit.

Richard Franulovich, a Financial Strategist at Westpac, also commented:

‘The selection of Boris Johnson resolves one UK uncertainty, with a likely “honeymoon” as his Cabinet forms. Newly elected EU officials and Brexit negotiators may be more open to discussions.’

Any signs of a breakthrough could bolster market confidence in the Pound, and we could see the GBP/EUR exchange rate begin to improve.