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Euro Rates Today Strengthen, As Further Brexit Talks in Doubt

Market CommentaryEuro Rates Today Strengthen, As Further Brexit Talks in Doubt
Euro Rates Today Strengthen, As Further Brexit Talks in Doubt
Euro to The Pound Today.

The euro to pound interbank exchange rate stands at 0.8930 today, just -0.03% below its highest in three weeks, or since Sunday 15th September, reached last Friday 4th October, at 0.8933.

By contrast, back on Friday 20th September, the Eurozone’s common currency was as weak as 0.8797 versus British sterling. So the euro has since risen by +1.54%.

This could benefit you, because when you transfer money to the UK from Spain or France, you might get a higher pound total, compared to if you’d exchanged currencies in the last three weeks.

In turn, this may make it more profitable for you to send money to the UK, if you’re selling property abroad, or to make regular payments to Great Britain for your Eurozone business.

To stay up-to-date with the euro rates today, visit Pure FX’s Rates & Tools page. Here, select ‘EUR’ (Euro) to ‘GBP’ (Great British Pound) to see the interbank exchange rates for the last week.

Also, to check what’s influencing the value of the common currency versus sterling recently, visit Pure FX’s EUR to GBP Exchange Rate Updates page. Here, simply click on the latest article.

One reason why the euro to pound interbank exchange rate has neared this three-week high is because the EU has warned that the UK’s Brexit plans don’t form the basis for further negotiations.

Another factor why the euro has gained in value versus sterling is because the EU has given the UK until Friday to explain its proposals, or it’s doubtful that there’ll be further talks for now.

However, looking to the foreseeable future, the common currency could be affected against sterling, because Germany’s manufacturing sector weakened further in August, said data yesterday.

Euro to The Pound Today Gains, as EU Rejects UK’s Draft Brexit Plans

As I mention, one reason why the euro to pound interbank exchange rate has neared this three-week high is because the European Union (EU) has warned that UK Prime Minister Boris Johnson’s Brexit plans, sent to Brussels late last week, don’t form the basis for further negotiations.

It’s feared that this increases the probability that the UK and the EU won’t reach a Brexit deal soon.

To explain, The Guardian newspaper reports that the EU has explained its nine objections to the UK’s Brexit proposals, during talks in Brussels with Mr. Johnson’s chief Brexit negotiator, David Frost.

Similarly, EU leaders including German Chancellor Angela Merkel and French President Emmanuel Macron explained their objections to Mr. Johnson, in a series of telephone calls over the weekend.

The EU’s objections include the proposed “Stormont lock” on Northern Ireland’s future regulatory status with the UK or the EU, which it’s thought would give Mr. Johnson’s Parliamentary allies, the Democratic Unionist Party (DUP), the power to unilaterally decide Northern Ireland’s future.

The EU’s objections also include the apparent need for customs checks on the island of Ireland, and complications regarding VAT regimes.

In particular, Ireland’s Taoiseach (Prime Minister) Leo Varadkar has warned that the UK’s proposals “do not form the basis for further negotiations”.

Meanwhile, the EU’s leaders told PM Johnson over the weekend that they won’t address the technical details, until the UK amends the “fundamental flaws”. Dr. Merkel and Mr. Macron have refused to meet Mr. Johnson in person, until Mr. Varadkar gives his okay.

Elsewhere, a European Commission (EC) spokeswoman said on Monday 7th October that: “The UK’s proposals do not meet at present the objectives of the protocol on Northern Ireland/Ireland and this is the shared view of the EU parliament but also all member states.”

In addition, the Netherland’s Foreign Minister Stef Blok has tweeted that “Important questions still remain on UK Brexit proposals.”

The EU’s objections are important, because PM Johnson had argued, before publishing his proposals, that they’re the UK’s “final offer” to reach a Brexit deal.

If this is the case, and the UK refuses to fully explain how its Brexit proposals would work in practice, or to amend them, this could increase the possibility that there’ll ultimately be a ‘No Deal’ Brexit. This has weakened sterling.

EUR to GBP Strengthens, as UK Preparing for Brexit Talks to Break Down

In addition, another explanation why the euro rates today have neared this three-week high is because the EU has given the UK only until this Friday 11th October to further explain its Brexit proposals, or to amend them.

In the meantime, Mr. Johnson’s minority Conservative government is preparing for the possibility that negotiations may break down, reports The Spectator magazine.

The Spectator cities a Number 10 Downing Street source, who says that "There are quite a few people in Paris and Berlin who would like to discuss our offer but Merkel and Macron won't push [EU Chief Brexit Negotiator Michel] Barnier unless Ireland says it wants to negotiate.”

So Ireland’s Mr. Varadkar has an effective veto on the UK’s and Ireland’s Brexit talks, and there won’t be an agreement until Ireland is satisfied.

As a result, it’s thought that Mr. Johnson’s administration is planning for the possibility that talks won’t progress further, given what the EU describes as the UK’s proposals’ “fundamental flaws”.

In this case, the UK and the EU may achieve further little progress in Brexit discussions, leading up to the current deadline of Thursday 31st October, six months after the original Brexit limit.

However, it’s important to add that, even if the UK and the EU don’t make Brexit progress in the next three weeks, the UK is unlikely to exit with a ‘No Deal’ at the end of October.

This is because, according to the Benn Act, which opposition MPs passed in Parliament last month, Mr. Johnson is obliged to request more time to agree Brexit, if there’s no deal by Saturday 19th October.

It’s unclear if Mr. Johnson will abide by the Benn Act. This is because, while the PM has said that he’d “rather be dead in a ditch” than request another extension to Article 50, the UK’s Brexit timetable, UK government documents submitted to a Scottish court yesterday reveal that Mr. Johnson will obey the law.

So it’s ambiguous how Mr. Johnson can request an extension, yet take the UK out of the EU by the end of this month.

One possibility is that, while Mr. Johnson asks for a Brexit extension, because he’s legally obliged to, he may simultaneously try to convince the EU not to give it to him.

To further extend Brexit, all 27 EU member states must agree to it. So Mr. Johnson only has to convince one ally, for example Hungary’s right-wing PM Viktor Orban, not to grant the extension, for the UK to exit this month.

However, the financial markets seemingly remain unconvinced by this possibility. For example, Kim Mundy, a strategist at CBA, writes that “the risk of a hard Brexit on 31 October is low.”

So it appears likelier that the EU will agree to extend Brexit beyond October 31st. In this case, the UK may use the extension to hold a general election, to decide how the UK will finally exit the EU.

In this case, PM Johnson will want to regain the Conservatives’ lost Parliamentary majority, to achieve Brexit. However, the polls suggest that the Tories’ vote could be split with Nigel Farage’s Brexit Party, in which case Mr. Johnson may have to rule in coalition. This has weighed down the pound.

Euro Rates Today Could Be Affected, as Eurozone’s Economy Weakens Further

That said, looking to the foreseeable future, the euro to pound interbank exchange rate could be affected, because the Eurozone’s economy has lost further momentum, said trusted statistics yesterday.

In particular, Germany’s manufacturing sector, arguably the euro bloc’s economic motor, has again contracted, while Eurozone investors feel increasingly gloomy about the outlook.

To begin, Germany’s factory orders fell by -0.6% month-on-month in August, according to Germany’s central bank, the Deutsche Bundesbank, yesterday.

This was above economists’ predictions for -1.5%. Yet on a year-on-year basis, Germany’s factory orders declined by -6.7%, well beyond forecasts for -4.6%. This is because of Brexit, and the United States’ and China’s trade war.

Similarly, Germany’s industrial production surprisingly rose by +0.3% in August compared to July, said Germany’s government statistics office Destatis today, above predictions for -0.3%.

Yet compared to August last year, Germany’s industrial production fell by -4.0%, far below predictions for -2.7%. This points to the impact of the trade war in slowing Germany’s manufacturing base.

Elsewhere, according to economics watchdog Sentix today, Eurozone investor confidence dropped to -16.8 this month. This is below forecasts for -13.0, as well as September’s figure of -11.1.

In part, this is because the United States announced late last week that it’s imposed tariffs on $7.5 billion of EU imports to the USA, from German industrial components to Spanish olive oil and cheese.

The United States’ decision opens another front in America’s trade war, what with its 18-month dispute with China ongoing.

Already, the Eurozone is arguably the biggest loser in Washington’s and Beijing’s trade conflict. So US President Donald Trump’s decision to directly impose tariffs on the EU may further weaken the Eurozone’s economy, looking ahead. In turn, this may affect the value of the euro.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or Contact Us.

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