- Pound Euro Exchange Rate Trends Near 1.13 – Briefly dips to 1.12 on Brexit concerns
- Northern Ireland’s DUP Blocks Brexit Agreement – UK services also disappoint
- GBP Forecast: Brexit Talks in Focus – Could a divorce deal still be reached this week?
- EUR Forecast: Eurozone Growth on Thursday – Could boost Euro support
The Pound Euro exchange rate has seen wide fluctuations since markets opened this week. Sterling initially surged on Monday on hopes that a Brexit divorce deal was close to being finalised, but quickly shed gains and remained weak on Tuesday as Northern Ireland’s DUP Party blocked progress.
GBP EUR saw notable gains last week, jumping from 1.1176 to 1.1325. When markets opened on Monday the pair jumped between this opening level and a four-month-high of 1.1417, before dipping to around 1.1300 on Tuesday morning.
Pound (GBP) Weighed by Lack of Brexit Divorce Deal
The Pound’s broad volatility since markets opened this week has been enough to drive most Pound exchange rates and has been almost entirely caused by shifting market sentiment towards Brexit negotiations.
On Monday, investors were increasingly optimistic that the first phase of Brexit negotiations was about to see significant progress, and both UK and EU negotiators indicated that a deal on major divorce agreements could be reached by the end of the day.
However, due to a disagreement from Northern Ireland’s DUP Party on how the Northern Ireland border will be handled, no deal on the Brexit divorce process was ultimately reached yesterday.
The issue of how the Ireland to Northern Ireland border will be handled following Brexit has become the major point of contention in Brexit negotiations, with just over a week until the EU summit is set to take place.
EU officials have indicated that if no deal is reached by the time of the EU summit, the first phase may not conclude until well into 2018 and this could cause the delay of highly anticipated UK EU trade talks. In this scenario, ‘hard Brexit’ concerns would worsen and the Pound would weaken.
Still, Sterling’s losses weren’t drastic. GBP EUR avoided its worst levels as markets anticipate a deal could still be reached within the coming days. According to strategists from Credit Agricole CIB;
‘Sterling continues to nurse its bruises from the news from Brexit talks,
The price action in the currency markets may suggest that a constructive outcome from the negotiations is still possible.’
Amid the market focus on Brexit talks, investors paid little attention to the latest UK ecostats, including Markit’s November UK PMIs.
Markit’s typically influential UK services PMI came in worse than expected, dropping from 55.6 to 53.8 rather than the expected 55. The composite PMI slipped from 55.4 to 54.7.
Euro (EUR) Strength Limited as Eurozone PMIs Meet Expectations
Despite the Pound’s fluctuations, the Euro has been unable to capitalise and push GBP EUR lower in recent sessions amid a lack of fresh reasons to buy the shared currency.
Recent Eurozone data has been decent, but not strong enough to notably improve the already strong economic outlook for the bloc.
Tuesday saw the publication of Markit’s final November services PMIs for the Eurozone, which generally met expectations in most major prints. The Eurozone services PMI came in at 56.2 as projected and the composite PMI at a strong 57.5 as projected.
The report reflected an optimistic economic outlook. According to Chris Williamson, Markit’s chief economist;
‘The survey data therefore suggest that business as a whole in the Eurozone has so far been largely unaffected by political uncertainty in many countries, notably Germany and Spain, once again defying widespread expectations that growth would slow as uncertainty leads to more risk averse decision making. So far, the strengthening of the euro also shows no discernible impact on exports.’
Overall though, the Euro outlook was unchanged following the report.
The US Dollar (USD) has been seeing increased focus in markets amid tax bill news. As the Euro often sees a negative correlation to the US Dollar, this has weighed on the shared currency too.
Pound Euro Exchange Rate Forecast: Brexit Developments in Focus
Markets remain hopeful that a deal can be reached on the terms of the Brexit divorce in the coming days, and this is keeping the Pound Euro exchange rate from falling further.
As the EU has indicated it wishes for progress to be made before the EU summit on the 14th of December, investors will become highly anxious if a deal is not reached this week. If a deal fails to be reached by the 14th, the Pound will plummet.
UK Prime Minister Theresa May and EU negotiators have shown confidence that a deal will be reached when more Brussels meetings are held later in the week.
If a deal is reached, the Pound outlook will surge and investors will become more confident that UK-EU trade talks could be unlocked in the coming months. This would bolster hopes for a Brexit ‘transition period’ and keep hard Brexit fears at bay.
Upcoming UK data is unlikely to have much impact with Brexit news still in focus.
However, Eurozone growth stats due on Thursday could boost Euro demand if they beat expectations. This could limit Pound Euro exchange rate strength.
GBP EUR Interbank Rate
At the time of writing this article, the Pound Euro exchange rate trended in the region of 1.1320. The Euro to Pound exchange rate traded at around 0.8835.