Pound Euro (GBP/EUR) Exchange Rate Recoups Losses following Brexit Minister Statement
(Updated 16:00, 10/11/21) The Pound Euro (GBP/EUR) exchange rate has managed to bounce off today’s lows this afternoon after Brexit Minister Lord Frost quashed speculation that the UK was on the brink of triggering Article 16, which would effectively suspend the Northern Ireland protocol.
Speaking at the House of Lords this afternoon, Lord Frost reassured peers that negotiations would continue. He said:
‘There is more to do and I will certainly not give up on this process unless and until it is abundantly clear that nothing more can be done. We are certainly not there yet…
‘Article 16 is not inevitable. I want to be clear about that.’
Some commentators had expected the Brexit Minister to signal the triggering of Article 16. Instead, the de-escalation soothed GBP investors (at least for the time being).
GBP/EUR is also benefitting from a slightly weaker Euro (EUR) due to its negative correlation with the US Dollar (USD). USD exchange rates have firmed this afternoon following some strong American data. US inflation surged to 6.2% – a 31-year high. In addition, initial jobless claims fell to a new pandemic low of 267,000. These releases boosted the US Dollar, thereby denting the Euro.
At the time of writing, the Pound Euro exchange rate is trading at €1.170 – just shy of this morning’s opening level of €1.171 but up from today’s low of €1.1685.
Original article continues below:
Pound Euro (GBP/EUR) Exchange Rate Ticks Lower amid Ongoing Brexit Worries
The Pound Euro (GBP/EUR) exchange rate is weakening today as Brexit tensions and the Bank of England’s (BoE) dovish decision last week continue to weigh on the Pound (GBP). Meanwhile, there is no clear driver for the upward movement in the Euro (EUR).
Pound (GBP) Softens as Brexit Concerns Continue
The Pound is under pressure as the Northern Ireland protocol dispute seems to be coming to a head.
After months of negotiations, the UK and the EU remain deadlocked over the issue. The UK government looks close to triggering Article 16, which would suspend parts of the protocol, raising fears that the EU could respond by collapsing the UK-EU trade deal.
Recently, Ireland has started making contingency plans in case of a trade war between the UK and the EU. Speaking yesterday, Tánaiste (Irish deputy head of government) Leo Varadkar confirmed that the Irish government is preparing for a breakdown in trade relations. Varadkar said:
‘I don’t think anybody wants to see the EU suspending the trade and co-operation agreement with Britain…
‘But if Britain were to act in such a way that it was resigning from the protocol, resigning from the withdrawal agreement… the EU would have no option other than to introduce what we call rebalancing measures to respond.’
In addition, the Pound remains fairly subdued following the Bank of England’s decision to hold interest rates last week. This surprised markets and saw the Pound Euro pair tumble to a five-week low, where it remains.
Euro (EUR) Firms despite Soaring German Inflation
Meanwhile, the Euro has firmed this morning, without any clear catalyst for the movement.
At the open of today’s European session, the latest data showed that inflation in Germany rose to 4.5% in October. Surging energy prices, which have been causing headaches for manufacturers across Europe, were a main factor behind the rise.
However, the CPI printed in line with economists’ expectations and therefore did not seem to dent the Euro.
The latest economic forecasts from German government advisers may be influencing EUR exchange rates. While advisers cut their growth forecast for this year by 0.4% they also raised their forecast for 2022 by 0.6%.
The outlook paints a mixed picture of Europe’s largest economy. While Germany is projected to rebound stronger next year, growth this year has been sluggish.
Movement in the Euro may currently be limited as markets await the US CPI this afternoon. Analysts expect US inflation to hit a 30-year high of 5.8%, which could raise bets for an earlier-than-anticipated rate hike from the Federal Reserve and therefore boost the US Dollar (USD). As the US Dollar and the Euro have a strong negative correlation, EUR investors may be cautious ahead of the CPI release.
Pound Euro Exchange Rate Forecast: Movement Limited ahead of the US CPI?
With no clear driver for the upside in the Euro, it’s possible that we may see the pair begin to waver as the session goes on. However, movement may be limited as investors could stay cautious ahead of the US CPI release.
If US inflation causes a spike in USD exchange rates, the single currency may suffer due to its negative correlation with the US Dollar.
As for the Pound, a lack of UK data may have GBP investors looking at domestic headlines for fresh impetus.