Pound Euro Exchange Rate Rebounds as EU Grants Extension to Northern Ireland Protocol

Pound Euro Exchange Rate Lifted by Brexit Optimism 

(Updated 14:45 23/6/21) The Pound Euro (GBP/EUR) exchange rate is currently trending positively again this afternoon as GBP investors welcome reports that the EU will grant an extension to the chilled meats grace period of the Northern Ireland Protocol. 

Irish national broadcaster RTE, reports that EU member states have informally agreed to offer a three-month extension which will allow food consignments to flow freely between Great Britain and Northern Ireland. 

The move may help to cool tensions between the UK and EU, and GBP investors are hopeful the extended grace period will allow the two sides to find a long-term solution to the problem. 

Original article continues below: 

Pound Euro Exchange Rate Slips From Two-Month High 

The Pound Euro (GBP/EUR) exchange rate is trading below its best levels this morning, after the Eurozone’s latest PMI releases printed above estimates. 

At the time of writing the Pound Euro exchange rate is trading at around €1.1689, down roughly 0.3% from this morning’s best levels. 

Euro (EUR) Firms as Upbeat PMI Figures Boost Q2 GDP Expectations 

The Euro (EUR) has rebounded from a two-month low against the Pound (GBP) this morning, in the wake of the Eurozone’s latest PMI figures. 

According to data published by IHS Markit, the bloc’s manufacturing PMI held at 63.1 versus forecasts it would slip to 62.1, while the services PMI jumped from 55.2 to 58, slightly ahead of the 57.8 that had been expected. 

The data points to a stronger-than-expected recovery in Eurozone economic activity as more of the bloc opened up this month, with the Euro rising on the prospect of a strong rebound in economic growth in the second quarter. 

Chris Williamson, Chief Business Economist at IHS Markit, commented: 

‘The eurozone economy is booming at a pace not seen for 15 years as businesses report surging demand, with the upturn becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially consumer-facing firms.’ 

‘The data set the scene for an impressive expansion of GDP in the second quarter to be followed by even stronger growth in the third quarter.’ 

Pound (GBP) Dented as UK PMIs Miss 

At the same time, the Pound (GBP) has been placed on the defensive this morning after the UK’s own PMI figures printed below expectations. 

GBP investors were left slightly disappointed by the services PMI, which slipped from 62.9 to 61.7, missing consensus estimates it would climb to a new 24-year high of 63. 

While still a strong reading overall, the slightly damp end to the second quarter was enough to undermine Sterling sentiment and see GBP exchange rates retreat from their best levels this morning. 

Pound Euro Exchange Rate Forecast: BoE in the Spotlight 

Looking ahead, there’s no doubt that the main catalyst of movement in the Pound Euro (GBP/EUR) exchange rate tomorrow will be the Bank of England’s (BoE) latest rate decision. 

While the Monetary Policy Committee (MPC) isn’t expected to make any policy changes as it concludes its June meeting, recent comments from BoE policymakers and a jump in UK inflation last month sees GBP investors predicting a more hawkish outlook from the bank this month. 

This could propel Sterling sharply higher tomorrow, particularly if the BoE’s forward guidance hints at the tapering of its quantitative easing programme in the coming months. 

In the meantime, the Euro could receive a boost tomorrow morning with the publication of Germany’s latest IFO business climate index, which is expected to have continued to climb this month, having already struck a two-year high in May. 

Matthew Andrews

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