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Irish Border Concerns Knock GBP EUR Exchange Rate from Highs

  • GBP EUR Exchange Rate Remains Above 1.13 – On track to sustain major gains this week
  • Pound Weighed by Irish Border Jitters – UK and EU may not reach agreement in time
  • GBP Forecast: Investors Hope for Brexit Progress – But Irish border could be an obstacle
  • EUR Forecast: Eurozone Growth Data Ahead – As well as Eurozone retail sales

After days of stronger support due to hopes for major progress in Brexit talks, the GBP EUR exchange rate slipped from its highs on Friday. While Eurozone data impressed Euro investors on Friday, Sterling was weighed by concerns that an agreement on the Irish border would not be reached.

GBP EUR still looks on track to register significant gains this week. The pair opened at the level of 1.1177 and by Thursday had hit its best levels in almost a month – 1.1388. GBP EUR continued to trend above the level of 1.13 on Friday.

Pound (GBP) Weighed by Irish Border Concerns

The Pound saw a surge in demand earlier in the week, when reports emerged that UK and EU negotiations were getting closer to an agreement on the costs of the highly contentious Brexit ‘divorce bill’.

Negotiators had disagreed on the ‘divorce bill’ for months, causing deadlocks that have prevented negotiations from reaching the second phase – which will include UK-EU trade talks.

Market relief at the reports boosted the Pound outlook significantly, with investors becoming more hopeful that Brexit discussions could move onto trade within the coming months.

However, other parts of divorce proceedings are still weighing on the Pound.

While some reports recently suggested that the UK and EU were also close to reaching an agreement on how to handle the Ireland to Northern Ireland border following Brexit, Friday saw MPs familiar with the subject doubting that an agreement could be made.

Both Ireland, an EU nation, and Northern Ireland, a member of the UK, wish for a soft border even after Brexit. The UK government wishes to have a hard border with the rest of the EU.

According to Irish Foreign Minister Simon Coveney;

‘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. We can’t be asked to leap into the dark by opening up phase two discussions in the hope that these issues might be resolved.’

He went on to say that Ireland was hoping negotiators would reach a worded agreement on the parameters of a solution by the 14th of December, giving the UK government a new deadline and markets a new key date to anticipate.

Britain’s November manufacturing PMI from Markit beat expectations on Friday, rising from 56.6 to 58.2 and beating 56.5 expectations. This helped the Pound to avoid further losses.

Euro (EUR) Supported by Strong Domestic Data

Demand for the Euro once again strengthened towards the end of the week as investors digested some better than expected Eurozone ecostats, indicating that the Eurozone’s economic outlook was strong.

Eurozone inflation was underwhelming, which briefly left the Euro weaker yesterday.

The latest year on year Eurozone inflation projection failed to meet expectations on Thursday, coming in at just 1.5% rather than the expected 1.6%. The core inflation rate projection remained at 0.9% for November.

However, other recent Eurozone data has been impressive. The Eurozone’s key unemployment rate unexpectedly improved from 8.9% to 8.8% in October and growth data has been solid.

Friday saw the publication of the Eurozone’s final November manufacturing PMIs from Markit. As France’s manufacturing stats came in at an even better than projected 57.7, the Eurozone’s overall manufacturing PMI beat the projected 60 and printed at 60.1.

The Euro also benefitted slightly towards the end of the week from weaker US Dollar (USD) trade. As the US Dollar often has a negative correlation to the Euro, its poor performance since Thursday left the Euro more appealing.

GBP EUR Exchange Rate Forecast: Brexit News in Focus

Could UK and EU negotiators reach agreements on the terms of the Brexit divorce process before the EU summit in December? That’s what GBP EUR exchange rate trade will rely on in the coming days.

The EU set a deadline of the 4th of December for both sides to come to an agreement on the divorce bill if the UK wanted to make major progress in talks before the end of the year, and investors are currently more confident that this deal can be reached.

Ireland’s foreign minister Simon Coveney indicated on Friday that his preferred deadline for an agreement on the Irish border issue was before the 14th of December.

As a result, developments in the Irish border issue could remain a key point in Pound trade over the coming days, especially as UK data is unlikely to be hugely influential.

If Markit’s UK services PMI from November comes in well above expectations, this could improve the UK economic outlook slightly which would boost Pound demand.

The Euro, on the other hand, is likely to react to Markit’s final November PMIs, as well as key Q3 Gross Domestic Product (GDP) data from the Eurozone throughout the coming week.

GBP EUR Interbank Rate

At the time of writing this article, the GBP EUR exchange rate trended in the region of 1.1340. The Euro to Pound exchange rate traded at around 0.8815.