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GBP EUR Exchange Rate Fluctuates amid Brexit Agreement Collapse and Mixed EU Ecostats

December 5, 2017 - Written by John Cameron

The Pound Euro (GBP EUR) exchange rate see-sawed today as markets responded to the collapse of negotiations between London and Brussels over the subject of the Irish border and some mixed ecostats from the Eurozone.

Eurozone Data Proves Mixed, GBP EUR Exchange Rates Eventually Capitalise

Data from the bloc today was quite mixed, with the Eurozone Markit services and composite PMI assessment being positive, but retail sales through the bloc being negative.

In regards to the former; the Eurozone’s composite reading printed at 57.5 in November, in-line with the flash estimate and toppling the previous month’s print of 56.

This marked the strongest rate of expansion within the private sector in almost 7 years, with the rate of job creation climbing to its highest levels in 17 years and new orders demonstrating their best gains since February 2011.

In respect to manufacturing, output soared the most that is has done since April 2000, whilst service sector growth also climbed to a six-month high.

Whilst these figures were all positive - and broadly based – they were widely what the markets expected.

On the other hand, the massive drop in retail sales was not expected.

Retail sales throughout the bloc only rose by 0.4% year-on-year in October, down from the previous period’s 4% gain and missing the market forecast of 1.5%.

This was the smallest increase in retail trade since July 2014, news that eventually dragged on the Euro enough to push things into the Pound’s favour.

UK Services Data Disappoints, EUR GBP Exchange Rate Initially Climbs

The IHS Markit UK services PMI demonstrated a fall to 53.8 in November, below the previous six-month high of 55.6 and below the forecast of 55.

This was predominantly caused by a fall in the volume of new work, with business activity growing at a slower pace this period, and the rate of job creation largely remaining unchanged from the previous seven-month low.

Duncan Brock from the Chartered institute of Procurement and Supply discussed the figures:

‘November’s data painted a disappointing portrait of a sector struggling against Brexit-related uncertainty and a weaker economic outlook, as fewer jobs were created and overall activity dropped back’.

The service sector makes up 80% of UK GDP, making this news all the more significant for investors.

As a result, the Pound promptly fell.

GBP EUR Forecast: Irish Border Dispute Encumbers the Pound

UK Prime Minister Theresa May’s carefully choreographed Brexit divorce deal with Brussels collapsed at the last moments on Monday when Northern Ireland’s Democratic Unionist Party (DUP) rejected calls for Northern Ireland to be prevented from leaving the EU on the same terms as the rest of the UK.

In this sense May’s efforts to finalise the agreement with European Commission President Jean-Claude Juncker was deemed a failure by the markets, though Juncker seemed to remain optimistic:

‘Despite our best efforts and significant progress it was not possible to reach a complete agreement today. This is not a failure; this is the start of the very last round’.

Juncker also asserted that he still expects that sufficient progress will be made in time for next week’s summit (14th-15th Dec), though markets were somewhat unconvinced.

It should be noted, however, that market demand for the Pound picked up later into the day, after the DUP explained their fears of being absorbed by the EU, potentially giving the UK negotiators some bargaining power in future talks.

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