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Pound Euro (GBP/EUR) Exchange Rate Falls as Irish Backstop Talks Fail to Breakthrough

March 6, 2019 - Written by John Cameron

GBP/EUR Exchange Rate Down as EU-UK Backstop Talks Lack Consensus

The Pound Euro (GBP/EUR) exchange rate is down today and is currently trading around €1.1634 on the inter-bank market.

Sterling (GBP) fell against the Euro (EUR) today following news that fresh Irish backstop talks between the UK and the EU, with the EU’s Brexit Secretary, Michel Barnier, and the UK’s Attorney General, Geoffrey Cox, ending discussions without any breakthrough.

Cox, however, remained optimistic, saying:

‘There are very sensitive discussions. We are into the meat of the matter now. We have put forward some proposals, very reasonable proposals. We are now into the detail of the discussion.’

Many Pound traders, however, have become increasingly cautious as the backstop issue remains crucial for the success of Prime Minister Theresa May’s Brexit deal passing through the parliamentary vote on 12 March.

A spokesman for the European Commission concluded pessimistically, commenting:

‘No solution has been identified at this point that is consistent with the withdrawal agreement including the protocol on Northern Ireland, which as you all know will not be reopened.’

EUR/GBP Exchange Rate Increases as German Construction PMI Improves

The Euro gained on Sterling following the publication of the German Construction PMI figures for February today, which increased against the consensus of 50.7 to 54.7.

Eliot Kerr, an economist at IHS Markit, commented:

‘The Eurozone construction sector posted a stronger set of numbers in February… The accelerations in activity and new order growth will be a welcomed boost for builders after January’s slowdown.’

There are few other Eurozone economic data releases today, with many Euro traders looking ahead to tomorrow’s European Central Bank’s interest rate decision instead.

GBP/EUR Exchange Rate Drops as BoE Warn against Chaotic Brexit

Today, meanwhile, saw Jon Cunliffe, the Deputy Governor of the Bank of England, warn against a chaotic Brexit, saying that it was the biggest threat to the UK economy.

Cunliffe sobered students at the London School of Economics, saying:

‘Such an outcome may not be what we expect to happen or what is likely to happen but rather the worst possible case… But, if it occurred, it would almost certainly lead to a correction in UK asset prices and losses for UK banks.’

This has further weakened Sterling today, with fears of a no-deal Brexit still haunting markets following the inconclusive talks over in Brussels.

GBP/EUR Forecast: Pound Could Fall Further on Lack of Brexit Developments

Euro traders will be looking ahead to the publication of the Eurozone’s GDP figures for the fourth-quarter tomorrow, and with any signs of an improvement this could buoy the single currency.

Tomorrow will also see the release of Italy’s retail sales figures for January.

GBP traders, meanwhile, will be awaiting the publication of the UK Halifax house prices figures for February, which are expected to improve and may prove Pound-positive.

The GBP/EUR exchange rate, however, will more likely remain sensitive to political developments for the rest of the week, with Brexit once again in the spotlight as the UK and the EU struggle to meet a consensus that would support Theresa May’s Brexit deal.

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