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GBP EUR Exchange Rate Declines as Brexit Committee Warns of Irish Border Difficulties

December 1, 2017 - Written by Frank Davies

Yesterday, the Pound saw a small rise against the Euro, from an opening rate of 1.1315 to close around the region of 1.1371.

Pound to Euro Rate Drops Off after Irish Border Plans Hang in Doubt

Surprisingly positive UK manufacturing data has failed to support the Pound today, which has instead declined against the Euro and most other peers.

This GBP weakness comes from Brexit issues, specifically the concern that an Irish border agreement won’t arrive in time for an upcoming EU summit.

It had seemed like a breakthrough was imminent earlier in the week, but recent statements from a Brexit committee have seemingly dashed these hopes.

MPs have warned that current proposals for a ‘frictionless border’ are largely ‘untested’, concluding that they are also ‘to some extent speculative’.

While this doesn’t make a resolution impossible, it has been a step back for those desiring an immediate solution to the problem.

Providing a silver lining to this cloud has been news of rising UK manufacturing activity. During the month in November, the manufacturing PMI reading has risen from 56.6 points to 58.2.

Economist Duncan Brock gave his take on the stats, saying;

‘A festive toast to a positive end after a turbulent Brexit backdrop year. Encouraging global market forces provided the foundation for the strongest rise in activity for 14 months, and a renewed confidence and focus in the manufacturing sector.

As the impact of the weak Pound diminished, businesses were turning their attention to new opportunities, clients, and investment as business optimism flourished from October’s four-month low.

We wait with bated breath to see if the EU negotiations manage to derail this accomplished end to the year or lift the sector to new heights with a clear path ahead for the UK.‘

Eurozone Manufacturing Stats push EUR/GBP Rate Higher

The Euro has traded higher against the Pound today, thanks to the news that Eurozone manufacturing has risen in November.

Not only has the key German reading shown increased growth, but overall Eurozone manufacturing activities have also been reported higher.

Chris Williamson, Chief Business Economist at IHS Markit, was broadly positive about the Eurozone’s strong readings;

‘November’s surveys produced improved PMI readings for all countries, resulting in the best performance since the height of the dot-com boom over 17 years ago.

There’s only been one month (April 2000) in the entire 20-year history of the survey with a higher PMI reading.

The buoyant November data looks likely to add to the global dominance of Euro area manufacturing seen so far this year.

Eurozone manufacturers have dominated the global PMI rankings in 2017, gaining an increased share of global trade as exports boom, buoyed in part by the weak currency.

Employment growth has hit an all-time high and business investment is trending sharply upwards, suggesting manufacturers are looking forward to the upturn persisting well into 2018’.

This positive data follows the release of Thursday’s unemployment and inflation figures, which showed lower joblessness and a slight rise in the Eurozone inflation rate.

Will GBP Stay Positive on Upcoming Manufacturing Stats?

Looking to next week’s economic news, the Pound could turn volatile on construction and services sector PMIs.

These activity measures will come out on Monday and Tuesday respectively and estimates are for higher activity levels in both cases.

The services reading is the most important of these – if it shows a sharp rise then the Pound could make a clear rally.

In the UK, the services sector is the largest contributor to national economic growth, as it encompasses areas like tourism and the high-profile financial services sector.

The first notable Eurozone data next week will be out on Tuesday, also consisting of PMI activity measures.

Confidence in the Euro could rocket up if forecasts prove accurate, as analysts predict higher reported services and composite PMI readings in November.

A Eurozone-specific retail sales reading is out after these results, but as lower sales are expected in October, the Euro could slip back against the Pound.
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