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Euro to The Pound Today at 1-Month High, as Brexit Talks Halt

Market CommentaryEuro to The Pound Today at 1-Month High, as Brexit Talks Halt
Euro to The Pound Today at 1-Month High, as Brexit Talks Halt

The euro to the pound interbank exchange rate stands at 0.8996 today, its joint-highest since Sunday 8th September, or over one month.

By comparison, back on Friday 20th September, the Eurozone’s common currency was as low as 0.8797 versus British sterling, so it’s since risen by +2.26%.

This could benefit you, because when you transfer money to the UK, you might now get a higher pound total in your British bank account, compared to if you’d bought sterling in the last month.

In turn, this could make it more profitable if you’re selling property abroad on the Costa del Sol or Cote d’Azur, or to make regular payments to your UK suppliers, if you’re a Eurozone business owner.

To stay up-to-date with the euro to the pound today on the interbank market, visit Pure FX’s Rates & Tools page. Here, select ‘EUR’ (Euro) to ‘GBP’ (Great British Pound).

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

One reason why the euro to the pound interbank exchange rate has reached this one-month high is because there are now no more Brexit negotiations scheduled between the UK and the EU, say reports.

However, looking to the foreseeable future, the euro’s value versus sterling might be affected, because it’s likely that the UK’s current Brexit deadline will be extended beyond October 31st.

In addition, looking forward, the common currency may also be influenced, because German’s exports fell in August, further raising the odds that the Eurozone’s largest economy is in recession.

Euro Rates Today Strengthen, as No More Brexit Talks Scheduled

As I mention, one reason why the euro to the pound today has hit this joint one-month high on the interbank market is because the UK’s and EU’s Brexit negotiating teams have confirmed that there are no more talks scheduled for the moment.

This follows a week of turbulent Brexit headlines, in which the EU seemingly hardened its position, and raises the probability of a ‘No Deal’.

To begin with, on the morning of Tuesday 8th October, UK Prime Minister (PM) Boris Johnson held a telephone call with German Chancellor Angela Merkel, in which Mr. Johnson asked his German counterpart to help “get the boat off the rocks”, referring to the Brexit talks.

In part, this is because the UK’s revised Brexit proposals have received a lukewarm reception from the EU’s leaders.

However, according to a Number 10 Downing Street source speaking to Sky News, Dr. Merkel declined to throw a rope to Mr. Johnson, so to speak.

Instead, the German Chancellor seemingly hardened her Brexit position, arguing that, while the UK is free to leave the EU under the current Brexit proposals, Northern Ireland would have to remain in the EU’s Customs Union “forever”.

The Downing Street source says that Dr. Merkel said “forever” repeatedly. The EU has yet to confirm nor deny these reports, yet if they’re accurate, then no UK government could accept these terms.

After all, they’d mean constitutionally separating Northern Ireland from the rest of the UK. The No. 10 source described Dr. Merkel’s remarks as a “clarifying moment” in the negotiations.

Since then, both the UK’s and EU’s Brexit negotiations teams have confirmed that there’s no more talks scheduled for now, reports The Guardian.

For the last few weeks, ever since PM Johnson’s successful meeting with European Commission (EC) President Jean-Claude Juncker, the UK and EU have been talking almost daily. So this suggests that there’s been a significant cooling in UK/EU Brexit progress.

That said, it’s important to note that, just because it looks less likely that the UK and the EU will reach a Brexit deal by the current deadline of October 31st, the UK looks unlikely to leave with ‘No Deal’.

Instead, according to opposition MPs’ Benn Act, passed in Parliament last month, PM Johnson will ask the EU for another Brexit extension, if there’s no agreement in place by October 19th.

It’s thought that, if the EU agrees to the extension, which could last for three months up to January 31st, then the UK will use the time to hold a general election.

In this case, PM Johnson will try to regain his lost Parliamentary majority, to pursue a “harder” Brexit, while it’s thought that Jeremy Corbyn’s Labour Party will campaign on retaining a closer relationship to the EU after we go.

In addition, it’s worth noting that, while the UK’s and EU’s negotiating teams have suspended talks for now, UK PM Johnson is scheduled to meet Ireland’s Prime Minister, Leo Varadkar, in Dublin today.

There, the two men will try to unblock the Brexit talks. In the meantime however, the lack of Brexit progress this week has worried some financial investors, thereby weakening sterling.

EUR to GBP May Be Affected, on Reports EU to Offer Backstop Concessions

However, looking to the foreseeable future, the euro to the pound interbank exchange rate could be influenced, because The Times newspaper has reported that the EU is preparing to offer a concession over the so-called Northern Irish “backstop”, to try and accelerate the Brexit progress.

If this is true, it could open the door to the UK and EU at long last reaching a Brexit agreement.

Under the terms of the current draft Brexit Withdrawal Agreement, if the UK and EU can’t agree a future trade deal, then Northern Ireland would stay in the EU’s Customs Union indefinitely.

This is to ensure that there’s no border infrastructure between Ireland and Northern Ireland, which would break the terms of 1998’s Good Friday Agreement, and so risk a return to sectarian violence.

However, according to The Times, the EU is preparing to soften the terms of the “backstop”, to be more palatable to the UK.

In particular, it’s thought that Brussels will allow Northern Ireland’s Stormont assembly a vote on whether to remain in the EU’s Customs Union every few years. This way, Northern Ireland could unilaterally decide whether to stay closer to the EU, or to the UK.

According to the report, for the Stormont assembly to agree this change, there’d have to be a “double majority”. In this case, both the Democratic Unionist Party (DUP), unionists close to the UK, and Sinn Féin, nationalists close to Ireland, would have to agree.

This is to ensure that any changes to Northern Ireland’s constitutional status are approved by the province’s two main political parties.

The Times’ source describes the EU’s proposals as "A landing zone on consent could be a double majority within Stormont, to leave, not to continue with the arrangements after X years.”

The advantage of these plans is that, if they’re accurate, it’s the first time that the EU has offered a concession to the “backstop”. Previously, Brussels has been adamant that it must be permanent.

However, the EU’s proposals could be described as a double-edged sword. This is because, while they’d technically resolve the “backstop” and unblock the Brexit talks, they’d require the DUP and Sinn Féin to agree.

Northern Ireland’s Stormont assembly has been closed in recent times, because unionists and nationalists so frequently disagree. So the EU’s proposal may not be accepted.

For example, Sammy Wilson, the DUP’s Brexit spokesperson, said about The Times report that: "It will go nowhere. The government in Westminster will not accept it, we will not accept it. I don't think anyone who looks at it with any kind of objectivity at all will say it's an improved offer".

So even if the report is accurate, it looks unlikely to unblock the UK’s and EU’s Brexit negotiations.

Elsewhere, it’s worth noting that UK PM Johnson has called for Parliament to be in session on a Saturday, for the first time since the Falklands War.

To be specific, MPs will attend the House of Commons on Saturday 19th October, two days after a crucial EU summit. By then, we’ll know if Mr. Johnson has reached a Brexit deal, or if he’ll be obliged to extend Brexit beyond October 31st. This may affect the pound.

Euro to The Pound Today Could Be Influenced, as German Exports Decline

Moreover, looking forward, the euro to the pound interbank exchange rate could also be affected, because Germany’s exports fell in August, said official statistics this morning.

This contributes to other recent signs that Germany, the Eurozone’s largest economy and its engine room, has entered a technical recession in 2019. If so, this may weigh on the wider Eurozone’s economy also.

To explain, Germany’s exports fell by -1.8% in August compared to July, said Statistiches Bundesamt Deutschland today. This was well below economists’ predictions for a -1.0% fall, as well as July’s +0.8% rise.

It’s also the steepest drop in Germany’s exports since April. In particular, Germany’s international sales fell by -4.8% to countries outside the EU, like the USA and China.

As a result of this decline in exports, Germany’s trade surplus fell to €18.1 billion in August, well below July’s €20.5 billion, as well as financial market predictions for €19.1 billion.

This is because, when Germany sells fewer goods to international clients, it’s less profitable for Germany’s vast manufacturing base. As a result, this slows down Germany’s GDP (Gross Domestic Product) growth.

Germany’s exports have weakened, because of a variety of international factors. These include Brexit, plus the United States’ and China’s trade war, to whom Germany sells large quantities of products.

It’s also because US President Donald Trump’s administration recently announced €7.5 billion in tariffs on EU exports to the USA, which will further squeeze Germany’s factory output.

Already, Germany’s GDP shrank by -0.1% in Q2, between April and June. So if Germany’s economy contracts again in Q3, between July and September, this will meet the technical definition of a recession.

For example, Uwe Burkert, economist at LBBW says that “We will likely have a contraction in GDP in the third quarter, and thus a recession." This could weigh on 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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