Pound Euro (GBP/EUR) Slides Despite Alleviating Brexit Fears
The Pound Euro (GBP/EUR) exchange rate is dropping considerably on Wednesday despite a promising breakthrough in the NI Protocol dispute.
At time of writing, the GBP/EUR exchange rate is around $1.1398, a 0.53% drop from this morning’s opening levels.
Pound (GBP) Falls amid Political Chaos Compounded by Economic Woes
The Pound (GBP) is experiencing mixed success against its peers today as a lack of data leaves Sterling open to market sentiment. Domestic issues continue to dominate movement amid the volatile political climate.
Lending some modest support, however, is news that the UK and EU have agreed to work together on resolving the NI Protocol. Prime Minister Rishi Sunak and European Commission President Ursula met at the COP27 conference in Egypt. With mounting fears of a trade war between the EU and the UK, an amicable solution would be preferable for both parties. A Downing Street spokesperson said:
‘The Prime Minister reiterated the need to find solutions to the very real problems (the NI protocol) had created on the ground in Northern Ireland.
‘They agreed on the importance of working together to agree a resolution.’
Meanwhile, capping any further gains is the continuing political volatility the UK finds itself mired in. The Cabinet Office minister became the latest Conservative resignation as Sunak remains under pressure over further bullying claims. Gavin Williamson resigns in the wake of accusations of ‘unethical and immoral behaviour’.
Euro (EUR) Buoyed by Hawkish ECB Commentary
Meanwhile, the Euro (EUR) is experiencing mixed success this morning as the US Midterms dominate the market’s focus. The negative correlation the Euro has with the US Dollar means investors will be keeping a close eye on developments across the pond.
With control over the Senate and Congress at stake, the Democrats are exceeding expectations as they wrested control over several crucial Senate seats. With many expecting a Republican takeover of the House of Representatives, a political gridlock would surely ensue. The inevitable blocking of any new legislation from President Joe Biden could work in the favour of markets.
However, lending some moderate support to the Euro is the continued hawkish commentary by the European Central Bank (ECB). ECB policymaker Joachim Nagel stated yesterday that further rate hikes are on the table and are still necessary.
Pound Euro Exchange Rate Forecast: Midterm Results to Boost the Euro?
Looking ahead, the Pound Euro exchange rate could see further fluctuations as midterm election results continue to trickle through. An expected divided government could see the US Dollar weaken, and in turn boost the Euro.
Meanwhile, a lack of major data for the Pound until Friday could see Sterling waver on domestic issues. Persistent political turmoil could sour GBP investor moods.