Pound Euro (GBP/EUR) Muted on Fishing Row and NI Protocol Talks
The Pound Euro (GBP/EUR) exchange rate is slightly weaker today as an escalating fishing rights row between the UK and France, and deadlocked UK-EU Northern Ireland protocol talks weigh on Sterling.
After GBP/EUR stabilised on Friday, the pairing has dipped again to trade at €1.1817 at the time of writing on Monday.
Pound (GBP) Dented by Brexit-Related Tensions
Brexit-related tensions are weighing on the Pound (GBP) today. Stalling UK-EU talks on the Northern Ireland protocol will resume later, while UK-France tensions are rising amid a fishing rights row.
Ahead of negotiations resuming between the UK and EU, vice-president of the European Commission Maroš Šefčovič has raised concerns over the UK’s stance.
Šefčovič said:
“I am increasingly concerned that the UK Government will refuse to engage with this and embark on a path of confrontation.
“With the EU’s package of enhanced opportunities from this October, we have gone the extra mile.
“But we have our limits, too, as we must protect the integrity of the EU’s Single Market and the interest of the 27 member states.”
Meanwhile, the UK has threatened France with legal action if they refuse to back down from threats made against UK fishing boats.
French officials have they will stop boats from entering some ports, as well as tighter customs checks on lorries unless French fisherman receive more licences to fish in UK waters.
UK foreign secretary Liz Truss said:
“The French have made completely unreasonable threats, including to the Channel Islands and to our fishing industry and they need to withdraw those threats.
“[The French must] stop threatening UK fishing vessels, stop threatening the Channel ports, and accept that we are entirely within our rights to allocate the fishing licences in line with the trade agreement, as we have done.”
The row over fishing rights appears to threaten escalating to affect the Northern Ireland protocol and trade deal.
Meanwhile, the UK’s finalised manufacturing PMI received a slight upward revision to 57.8 from 57.7, although data also showed output growth slowed to an eight-month low.
Euro (EUR) Steady as German Retail Sales Miss Forecast
The Euro (EUR) is edging higher on Monday, supported by its negative correlation with the US Dollar, which has paused from Friday’s bullish gains.
The single currency has made modest gains despite German retail sales figures for September unexpectedly contracting -2.5% instead of the 0.6% growth forecast.
The data has so far had a limited impact as some European markets are closed due to the All Saints’ Day national holiday. Following August’s 1.2% growth, last month’s contraction could weigh on EUR exchange rates tomorrow.
EUR exchange rates had ended last week under pressure after the Eurozone inflation rate rose above forecasts to 4.1% in October from 3.4% in September, causing investors jitters after the European Central Bank (ECB) had maintained its policy stance earlier in the week.
Pound Euro Forecast: BoE Interest Rate Decision in Focus
The Pound Euro exchange rate looks set for more volatility this week with the Bank of England (BoE) interest rate decision set to be a key driver of GBP/EUR.
Some analysts have priced in an interest rate hike in the November meeting, although many investors expect a rise in rates next month or early in 2022.
In the lead up to Thursday’s BoE announcement, the Pound will likely remain sensitive to headlines relating to UK-France relations and talks on the Northern Ireland protocol, while the finalised services PMI may lend extra support.
Meanwhile, confirmation the Eurozone’s manufacturing PMI slowed to its lowest level of growth in eight months may weigh on EUR exchange rates.
The bloc’s unemployment rate released on Wednesday may provide the Euro with some support as forecasts point to a drop to 7.4% in September from 7.5%.