Pound Euro Exchange Rate Loses Gains as Brexit Concerns Grow

Pound Euro (GBP/EUR) Exchange Rate Gives Ground following US CPI and Brexit Concerns

(Updated 14/9/21, 16:20) The Pound Euro (GBP/EUR) exchange rate has experienced a turnaround this afternoon following the disappointing US inflation figure and fears over post-Brexit trade.

US inflation eased in August, with the core inflation rate printing at 4% versus 4.2% year-on-year and 0.1% versus 0.3% month-on-month. The US Dollar (USD) dipped following the CPI miss, relieving some of the pressure on the Euro (EUR).

Meanwhile, Sterling’s tailwinds from this morning’s job data died down and renewed Brexit concerns began to weigh on the Pound (GBP).

Last night, David Frost – the UK’s Brexit minister – reiterated the government’s stance that the EU must ‘take renegotiations seriously or we will abandon Protocol’. Speaking in the House of Lords, Frost said:

‘I urge the EU to take this seriously. They would be making a significant mistake if they thought that we were not ready to use Article 16 safeguards, if that is our only choice to deal with the situation in front of us. If we are to avoid Article 16, there must be a real negotiation between us and the EU.’

Tensions between the UK and EU over the Northern Ireland protocol have dented Sterling in months past as investors fear the dispute could escalate into a trade war.

Worries over Brexit worsened following the government’s decision to once again delay some border checks on EU imports due to ‘longer-lasting impacts on businesses’ and ‘pressures on global supply chains’ caused by the pandemic, announced Penny Mordaunt, the Paymaster General, in a written ministerial statement earlier today.

The National Farmers’ Union and the Food and Drink Federation have criticised the decision, arguing that such a move would give EU exporters a commercial advantage over British-based firms. Since Brexit, UK exporters have been hit with new red tape, checks and costs, while EU exporters have continued to enjoy near frictionless trade with the UK.

The Pound Euro exchange rate is now trading at €1.17, down half a cent from today’s peak.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Climbs on UK Jobs Data and USD Strength

The Pound Euro (GBP/EUR) exchange rate is strengthening today after the latest employment data from the UK cheered GBP investors. 

At the time of writing, the Pound Euro pair is trading at €1.17426, about 0.2% up from this morning’s opening level. 

Pound (GBP) Gains on Strong Jobs Data 

The Pound (GBP) has found support today following some strong jobs data from the UK, which shows that UK company payrolls have returned to pre-pandemic levels. 

The latest data spanned from June to August, with each month printing positive results. 

August’s claimant count change showed that the number of people claiming unemployment benefits fell by 58,600, over double the 26,000 drop that was forecast. In addition, the number of employees on payroll rose by 241,000 to hit 29.1 million, returning back to similar levels seen in February 2020 before lockdown restrictions were introduced. 

Average earnings (including bonuses) in July rose by 8.3%, just above the 8.2% predicted, and July’s unemployment rate dropped to 4.6%. In June, employment increased by 183,000 versus the forecast figure of 178,000. Together, these reports point to a strong, sustained recovery in the UK labour market. 

Mims Davies MP, Minister for Employment, has welcomed the data: 

‘As we continue to push ahead with our recovery, it’s great to see another significant fall in unemployment and the number of people on payrolls rising by 241,000 in August – the biggest monthly increase on record – showing our Plan for Jobs is working.’ 

Other commentators are also celebrating this ‘milestone’ but while sounding a note of caution. The end of the furlough scheme, the rise in national insurance contributions, and the ongoing skills shortages in the UK could all contribute to a choppy labour market in the near future. 

Overall, however, the results are very positive, and have boosted the Pound Euro exchange rate today. 

Euro (EUR) Slips ahead of US CPI 

Meanwhile, the Euro (EUR) is somewhat subdued today as a lack of notable Eurozone data has left the single currency vulnerable to its negative correlation with a strengthening US Dollar (USD), particularly ahead of the latest US CPI release this afternoon. 

EUR investors may be hesitant to place any aggressive bets in the run-up to the CPI release, as a high reading could send the USD exchange rates soaring on the chance that the Federal Reserve may accelerate plans to tighten monetary policy. Expectations of a continued surge in US inflation have also pushed European equities lower

In addition, the prospect of the Fed winding down its stimulus programme is also rattling markets. This cautious turn also seems to be boosting the safe-haven US Dollar, thereby denting the Euro. 

Pound Euro Exchange Rate Forecast: US CPI in Focus 

The US CPI report is in the spotlight today. As mentioned above, if it shows that US inflation remains close to its 13-year high then we could see the US Dollar soar on Fed tapering expectations. 

If this happens, the single currency could find itself under significant pressure, allowing the Pound Euro exchange rate to make further gains.