Pound Euro Exchange Rate Slips as May’s Brexit Deal Loses Labour Support

Pound Euro (GBP/EUR) Exchange Rate Falls as May’s Brexit Deal Called into Doubt

The Pound (GBP) fell against the Euro (EUR) today following comments from John McDonnell, Labour’s Shadow Chancellor, in which he signified a general dispute amongst Labour MPs over backing Prime Minister Theresa May’s Brexit deal on the important vote date of 12 March.

This has weakened Sterling as fears mount that May’s deal will be rejected by Parliament, and further diminishing the likelihood of a Brexit deal and, potentially, causing further friction between the UK and the EU.

Meanwhile in European news, the French President Emmanuel Macron announced a ‘European Renaissance’ in which he used Brexit as an example, saying:

‘Who spoke to [the British people] about losing access to the EU market? Who mentioned the risks to peace in Ireland of restoring the border?’

Macron’s comments have exacerbated fears of a potential divide between the UK and the EU, and has continued to put pressure on the Pound today.

Pound Euro (GBP/EUR) Exchange Rate Rises Despite Concerns over Article 50 Extension

UPDATE: The Pound (GBP) has managed to gain on the Euro (EUR) today despite Dieter Kempf, The Head of the German Federation of Industries, saying that Britian was ‘lost’ amidst its Brexit uncertainty.

Kempf concluded:

‘The British House of Commons knows very well what it does not want, but not what it wants. It cannot decide. The British are lost, they can’t find the way to the exit. That makes it difficult for a negotiating partner.’

This has heightened fears of a possible no-deal between the UK and the EU, and with the lingering threat of Berlin failing to agree to an extension to Article 50, this has seen the Pound lose some of its gains today.

Meanwhile, the Euro has continued to weaken against the Pound with concerns over the weakening Eurozone with Italy continuing to remain in focus as its economy appears to be stuck in a recession.

Vincenzo Longo, an Analyst for IG Markets in Milan, commented:

‘The outlook remains highly uncertain and Italian companies seem to be aware of this… The main risks remain linked to the international context and to the internal one, with the political uncertainty under the lens of investors.’

GBP/EUR Exchange Rate Increases as Support for May’s Deal Rises

The Pound Euro (GBP/EUR) exchange rate rose above 0.4% today and is currently trading around €1.167.

The Pound (GBP) surged against the Euro (EUR) today following reports that Attorney General Geoffrey Cox has shelved demands for a time limit on the Norther Irish backstop. Cox has instead recommended an ‘arbitration mechanism’ which would effectively allow the UK or the EU to serve notice that the backstop should end at some unspecified point in the future.

The news has benefited Sterling with hopes that it will improve the likelihood of Prime Minister Theresa May’s withdrawal deal gaining support within Parliament.

However, some Eurosceptics remain critical of this backstop compromise, with Tory MP Steve Baker calling it a ‘satirical approach’.

The Euro, meanwhile, has come under increasing pressure from continuing downbeat assessments from the European Central Bank (ECB), and with Germany’s economy narrowly avoiding a recession last week, the single currency has continued to struggle against the Pound (GBP).

EUR/GBP Exchange Rate Falls despite Improving Eurozone PPI Figures

Today, meanwhile, saw the release of the Eurozone’s PPI figures for February which increased above consensus to 0.4%, although this failed to provide any uplift for the Euro (EUR).

The recent upsurge in Asian markets, following news that the US-China trade negotiations could meet a consensus soon, has bolstered some hopes in the Eurozone today.

Manfred Huebner, Managing Director at Sentix, remained optimistic, saying:

‘This gives reason to hope that there will be no recession… This region (Asia) is in the best shape according to investor estimates. Should the signs of recovery intensify, they would have a positive impact on the euro zone.’

Pound Euro (GBP/EUR) Exchange Rate Climbs despite Contraction in UK Construction

Sterling (GBP) was left relatively unmoved by the publication of the UK Markit Construction PMI figures for February today, which contracted to 49.5, in a disappointing fall below the consensus of 50.3.

Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, pessimistically opined:

‘[T]he foundations of the construction sector are crumbling under the weight of Brexit and businesses are switching to survival mode until the way forward is cleared.’

The Pound is nevertheless benefitting from the perceived increasing possibility of an extension of Article 50, with recent comments from the EU’s Chief Negotiator, Michel Barnier, indicating the necessity of a ‘technical’ extension to implement the Brexit deal.

Irish Prime Minister, Leo Varadkar, has also commented that an extension if ‘very likely’.

GBP/EUR Forecast: Sterling Could Rise Further on Bullish Comments from BoE

The GBP/EUR exchange rate is likely to be affected by any Brexit developments in the next coming days, with the 12 March parliamentary vote on Theresa May’s withdrawal agreement imminent.

Tomorrow, meanwhile, will see the publication of the UK BRC like-for-like retail sales figures for February, and with any signs of an increase this could prove Pound (GBP) positive.

These will be followed by the publication of the UK Markit Services PMI figures for February which are expected to improve.

Euro (EUR) traders, meanwhile, will be focusing on the publication of the Spanish Services PMI figures for February – which are expected to decrease – and the Eurozone’s flash PMI figures for February tomorrow.

The Governor of the Bank of England, Mark Carney, will be delivering a speech tomorrow and with any bullish comments following on from recent Brexit optimism, this could see the GBP/EUR exchange rate rise further.

David Moore

Contact David Moore