Pound Euro (GBP/EUR) Exchange Rate Ticks Lower as Markets Brace for Fed

Pound Euro (GBP/EUR) Exchange Rate Edges Lower on Brexit Concerns

(Updated 16:00, 02/11/21) The Pound Euro (GBP/EUR) exchange rate has wavered in a narrow range today, trending lower overall, as markets remain subdued ahead of the Federal Reserve’s interest rate decision tomorrow.

The Fed’s two-day policy meeting began today, and economists expect the central bank to announce tapering plans tomorrow. As such, investors are hesitant to place any bullish bets and movement is limited.

That said, the Euro (EUR) has managed to edge up against the Pound (GBP) today. Brexit concerns continue to act as a headwind for Sterling, with the recent armed hijacking of a bus in Northern Ireland acting as a chilling reminder of how important peace in Northern Ireland is.

The Pound Euro exchange rate has fallen from €1.17646 to €1.17479 through today’s session, a drop of around 1.4%.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Rangebound as Markets Hushed ahead of Fed

The Pound Euro (GBP/EUR) exchange rate is trading sideways at a three-week low today as a lack of market-moving data on both sides leaves the pair without a clear direction.

In addition, markets are bracing for the Federal Reserve interest rate decision tomorrow. This is likely causing some hesitancy among GBP and EUR investors.

Pound (GBP) Levels Out at Three-Week Low

The Pound (GBP) remains muted this morning, holding near a three-week low against the Euro (EUR), amid a lack of UK economic data.

The recent downside in the Pound came as Brexit tensions flared once again. Renewed negotiations over the Northern Ireland protocol remain unproductive and the UK and France are embroiled in a row over fishing rights.

The latter issue is looking less thorny today. French President Emmanuel Macron initially threatened to start punitive measures, including blocking British boats from key ports, implementing stricter checks and even cutting power to the Channel Islands, from midnight.

But today Macron has stepped back from these threats. The UK and France will now continue talks in an attempt to resolve the issue, removing one of the big Brexit issues weighing on the Pound.

However, the Northern Ireland problem remains. Talks between the EU and the UK have been unsuccessful thus far, with each side appearing frustrated with the other. European Commission Vice-President Maroš Šefčovič said that he was ‘increasingly concerned’ that the UK would ‘embark on a path of confrontation.’

His UK counterpart, Lord Frost, has said that the EU is acting ‘without regard’ for the sensitivities in Northern Ireland.

The deadlock was followed by violence in Northern Ireland, as two armed men hijacked a bus before setting it alight. Loyalists have claimed they carried out the attack to mark the 1 November deadline by which the DUP said they would collapse Stormont if significant changes to the protocol had not been secured.

With one Brexit headwind gone, the Pound seems to have stabilised. But things are heating up in Northern Ireland and Sterling remains subdued.

Euro (EUR) Muted on Manufacturing PMI Results

Meanwhile, the Euro (EUR) is also quiet today after the Eurozone’s manufacturing PMI printed marginally below expectations.

The finalised PMI came in slightly lower than the preliminary estimates, falling from 58.6 to an eight-month low of 58.3, rather than 58.5. With the results printing largely as expected, it hasn’t caused much movement. However, the slight downward revision may be keeping EUR muted.

The PMI confirmed that the ongoing supply chain crisis continues to hamper factory activity in the Eurozone. In particular, shortages of materials and components, rising prices, and transportation issues – including too few shipping containers, delays at ports and a lack of lorry drives – hobbled the Euro area’s manufacturing industry.

In addition, market activity seems hushed as the Federal Reserve begins its two-day monetary policy meeting. Investors expect the Fed to announce tapering plans tomorrow, which could have significant effects on global forex and equity markets.

As the Euro has a strong negative correlation to the US Dollar (USD), EUR investors may be particularly hesitant to place any bullish bets today.

Pound Euro Exchange Rate Forecast: Pre-Fed Lull Could Keep GBP/EUR Flat

With the Fed meeting hanging over markets today, we may see the Pound Euro pair trade in a narrow range for the rest of the session.

Tomorrow could be similar, although there are some data releases that could cause movement.

The UK’s finalised services PMI may support the Pound, as it’s expected to confirm a rise in service-sector activity. However, the result will likely have a larger effect if it deviates from the flash estimate.

For the single currency, the Eurozone’s unemployment rate is forecast to have fallen again in September to its lowest level since April 2020. If the data meets expectations, the Euro could firm.

Samuel Birnie

Contact Samuel Birnie


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