Pound Euro (GBP/EUR) Exchange Rate Retreats from €1.17 on EU Legal Threat

Pound Euro Exchange Rate Slips from Best Levels amid Brexit Concerns 

(Updated 15:15, 6/7/21) The Pound Euro (GBP/EUR) exchange rate briefly broke above €1.17 this afternoon, before subsequently relinquishing the majority of the day’s gains amidst renewed Brexit uncertainty.

This comes after European Commission Vice President, Maroš Šefčovič warned that Brussels will have no choice but to ‘step up’ legal action against the UK, if it continues to violate the terms of the Northern Ireland protocol.

While the EU has granted the UK’s request to extend the grace period pertaining to the movement of chilled meats into Northern Ireland, the two sides remain at odds and the issue threatens to sour future trade talks. 

Original article continues below: 

Pound Euro Exchange Rate Firms on Lacklustre German Data 

The Pound Euro (GBP/EUR) exchange rate is on the rise this morning, climbing in response to some lacklustre economic releases from Germany. 

At the time of writing the Pound Euro exchange rate is trading at around €1.1696, a modest rise from this morning’s opening rate. 

Euro (EUR) Undermined by Disappointing German Data 

The Euro (EUR) is on the defensive against the Pound (GBP) and the majority of its other peers this morning, as EUR investors digest some dismal data releases from Germany. 

This was kicked of this thing this morning with Germany’s latest factory orders figures, which reported a surprise 3.7% contraction of order growth in May. This was down from an upwardly revised 1.2% rise in order growth in April and missed forecasts for a robust 1% expansion. 

May’s slump in order growth was largely attributed to ongoing global supply chain issues, which hit demand in Germany’s car sector particularly hard. 

Further contributing the Euro’s weakness this morning was Germany’s latest ZEW economic sentiment index, which also printed below expectations. 

The ZEW economic research institute reported its measure of economic expectations going into July tumbled from 79.8 to 63.3, well short of economists’ forecast of modest drop to 75.  

Despite the sharp slump in the headline reading, economists said July’s figures still remain broadly positive, which may have helped to cap the Euro’s losses this morning.  

Achim Wambach, President of the ZEW institute, commented: 

‘The economic development continues to normalize. The situation indicator for Germany has clearly overcome the coronavirus-related decline.  Although the ZEW indicator of economic sentiment has once again fallen significantly, it is still at a very high level.” 

‘Financial market experts, therefore, expect the overall economic situation to be extraordinarily positive in the coming six months.’ 

Pound (GBP) Buoyed by Reopening Hopes 

At the same time, the Pound (GBP) continues to enjoy tailwinds from Boris Johnson’s announcement on Monday that all coronavirus restrictions in England will be lifted from 19 July. 

GBP investors are hopeful that the reopening of the final parts of England economy will help to turbocharge UK growth over the summer. 

However, some analysts have urged caution as the reopening is likely to trigger a sharp rise in infections, while the threat of vaccine resistant variants could still force the government to reintroduce some measures later in the year. 

Pound Euro Exchange Rate Forecast: Brexit Clouds Ahead? 

Looking ahead, the Pound Euro (GBP/EUR) exchange rate may have already peaked this week as the EU’s threats of legal action over the Northern Ireland protocol could sap Sterling sentiment in the coming days. 

Meanwhile EUR investors are likely to keep a close eye on European coronavirus developments, as a fourth wave of infections could disrupt the reopening plans of some countries within the Eurozone.