Pound Euro Exchange Rate Remains Subdued amid Brexit Fears

Pound Euro (GBP/EUR) Exchange Rate Bounces Off One-Week Lows

(Updated 16:30, 25/11/21) The Pound Euro (GBP/EUR) exchange rate bounced off one-week lows earlier today but remains subdued as the Northern Ireland protocol deadlock continues to worry GBP investors.

GBP/EUR fell sharply this morning, dropping from €1.19 to a one-week low of €1.1856. This afternoon it has regained some ground and is trading at €1.188 at the time of writing.

The single currency may have relinquished some of its gains as rising Covid cases spook EUR investors. Outgoing German Chancellor Angela Merkel has warned her successors that ‘every day counts’, urging them to act to curb Germany’s soaring infection rate. Meanwhile, Slovakia has entered a two-week lockdown and the Netherlands has announced it will bring in more ‘heavy measures’.

Fears that rising infection rates and new restrictions could disrupt the Eurozone’s economic recovery may have trimmed EUR’s gains today.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Falls amid Brexit Anxiety 

The Pound Euro (GBP/EUR) exchange rate has dropped sharply this morning as Brexit woes weigh on Sterling. 

The upside in the single currency comes despite growing concern over mainland Europe’s fourth wave of coronavirus infections, which has led to renewed lockdown restrictions in some countries this month. 

Pound (GBP) Dented by Brexit Concerns 

The Pound (GBP) has slipped against the Euro (EUR) this morning, as Brexit concerns weigh on Sterling. 

Yesterday afternoon, Boris Johnson told Taoiseach (Prime Minister of Ireland) Micheál Martin that the UK would have to trigger Article 16 if the current negotiations over the Northern Ireland protocol failed to end in agreement. 

Johnson also raised the issue of the European Court of Justice (CJEU), which has been a bone of contention in the discussions. The UK wants to remove the CJEU from its oversight role in Northern Ireland but the EU has ruled this out. If the sides cannot agree on this particular issue, talks could collapse. 

government press release about the conversation reads: 

‘The Prime Minister was clear, however, that if talks were not able to deliver a rebalanced and sustainable outcome soon, the Government would be left with no choice but to use the safeguard measures under Article 16.’ 

The comments come as relations between the UK and EU are fraught. The new German coalition government has warned of retaliatory measures should London suspend parts of the protocol. Meanwhile, the Anglo-French fishing dispute drags on, with French fishermen threatening action against the UK – possibly by blocking British vessels’ access to French ports. 

With investors worried that these UK-EU rows could develop into economically damaging situations, Sterling has weakened today. 

Euro (EUR) Gains despite Falling German Consumer Confidence 

Meanwhile, the Euro has shot up against the Pound today, despite a worse-than-expected drop in German consumer confidence heading into December. 

The German GfK consumer climate indicator fell from 1 to -1.6 – its worst reading since June and well below expectations of -0.5. 

The drop in consumer morale was partly caused by concerns that Germany will introduce new coronavirus restrictions. A fourth wave of Covid is sweeping across Europe, with Austria, the Netherlands and Belgium all imposing new lockdown measures in recent weeks. 

Despite this, the single currency is strengthening today. Once factor may be the formation of a new three-party coalition government in Germany. The coalition agreement ends two months of political uncertainty in Europe’s largest economy as the Social Democrats, Greens and liberals held intense talks to find common ground. 

The Euro may also be enjoying a slight change in tone from the European Central Bank (ECB). On Tuesday evening, ECB Vice President Luis de Guindos said that inflationary pressures in the Eurozone are becoming more permanent: 

‘The European Central Bank is continuously pointing out that the inflation rebound in recent months is of a transitory nature. However, we have also seen how in recent months these supply factors are becoming more structural, more permanent.’ 

The comments echo recent remarks from other ECB policymakers about the potential upside inflation risks, and may indicate that the central bank’s stance is beginning to shift. 

Pound Euro Exchange Rate Forecast: GBP/EUR to Rebound on Europe’s Covid Woes? 

After rising sharply this morning, it’s unclear whether the Euro will be able to hold its gains against the Pound. Europe’s coronavirus situation seems to be deteriorating rapidly, so any news about rising cases or lockdown restrictions could see the single currency relinquish its gains. 

Meanwhile, GBP investors will be looking ahead to speakers from the Bank of England (BoE) this afternoon. The focus will likely be on BoE Governor Andrew Bailey. Any clues about how he may vote in the bank’s meeting next month will likely impact the Pound Euro exchange rate. 

Samuel Birnie

Contact Samuel Birnie