Brexit news is taking focus once again in the Pound Euro forecast this week, with the pair trending steadily as markets anticipate major developments. There are still concerns that if the Irish border issue isn’t resolved, the Brexit process could fail to see notable progress in December and the second phase of talks could see delays.
GBP EUR saw major gains last week, climbing from the level of 1.1176 to 1.1325 amid hopes for Brexit progress.
Pound (GBP) Steady as Investors Anticipate Brexit Talks
The Pound saw a surge in demand last week, amid a jump in hopes that the first phase of Brexit negotiations was finally seeing major progress and that it could lead to trade talks beginning in the coming months.
It emerged last week that the UK and EU were closing in on an agreement regarding the Brexit ‘divorce bill’, which has long plagued negotiations and has been the cause of ‘deadlocks’ in talks.
Over the weekend, it appeared both sides of negotiations were indeed making significant progress regarding the UK-EU ‘divorce bill’, as well as the issue of citizens’ rights post-Brexit.
However, one major part of the first phase of negotiations is still surrounded in uncertainty and threatens to delay Brexit talks if it is not resolved.
UK Prime Minister Theresa May has been unable to secure a deal on the issue of the Irish border. Both Ireland and Northern Ireland wish to share a soft border following Brexit, but as the UK will be leaving the EU single market and customs union many officials doubt this is possible.
As a result, the Ireland government has indicated it will block Brexit talks from moving past the first phase of negotiations unless more progress is made.
Last week, Irish Foreign Minister Simon Coveney stated he would like a deal on Ireland before the EU summit takes place on the 14th of December.
This means the coming week could be highly influential for the Pound Euro forecast, as the EU summit draws nearer and an Irish border deal still has not been agreed to.
If no deal is reached on the border in the coming sessions, it could worsen concerns that talks could remain stuck into 2018 and this could significantly delay the second phase of talks.
If UK-EU trade talks are delayed, ‘hard Brexit’ fears will worsen and the Pound could reverse much of its recent losses.
Upcoming UK data is unlikely to be particularly influential until Friday’s trade balance and production stats come in, meaning Brexit news is likely to take focus in the Pound Euro forecast.
Euro (EUR) Supported by Eurozone Data
Demand for the Euro has been sturdy in recent months due to strong Eurozone ecostats, but it was unable to hold against last week’s surging Pound.
Still, GBP EUR gains were limited thanks to the most recent Eurozone data, which continues to indicate that the bloc’s economy is seeing stronger growth than expected.
The Eurozone’s October unemployment rate unexpectedly improved from 8.9% to 8.8% according to last Thursday’s report, and while the Eurozone inflation projection only came in at 1.5% the core inflation projection held steady at 0.9%.
This was followed on Friday by Markit’s final November manufacturing PMIs for the bloc, which beat projections and came in even stronger than anticipated. The Eurozone’s manufacturing PMI was forecast to rise from 58.5 to 60 but printed at 60.1.
Monday continued the strong data trend, with Greece’s Q3 Gross Domestic Product (GDP) results coming in 1.3% year-on-year rather than the expected 1%.
As there are unlikely to be any major political developments in the Eurozone until the New Year, Euro investors are likely to focus in Eurozone data over the coming week.
Markit’s final Eurozone PMIs for November will be published in the coming days, followed on Thursday by the Eurozone’s latest Q3 growth projections. If the growth projections beat expectations again, the Euro is likely to see stronger demand and this would weigh on the Pound Euro forecast.
GBP EUR Interbank Rate
At the time of writing this article, the Pound Euro exchange rate trended in the region of 1.1330. The Euro to Pound exchange rate traded at around 0.8825.