Pound Drops vs. Euro on Brexit Fears & Weak Manufacturing Data
  • Pound (GBP) rises despite Brexit uncertainties
  • UK Manufacturing PMI expected to show the sector expanded firmly in November
  • Euro (EUR) came under pressure as German disinflation continues
  • Eurozone manufacturing PMI expected at 53.6

The Pound Euro (GBP/EUR) exchange rate is extending gains for a second straight session on Tuesday. The pair settled on Monday +0.25% at €1.1164, 15 pips off the high of the day. At 05:15 UTC, GBP/EUR trades +0.1% at €1.1176.

The Pound managed to advance despite mutual warnings from the EU and the UK that time is running out to secure a Brexit trade deal. Substantial distance still remains between the two sides on state aid, fisheries and enforcement.

The clock continues to tick until the 31st December deadline when the transition period ends. Both sides are trying to secure a deal to govern nearly $1 trillion in annual trade. The Pound remains resilient despite talks remaining difficult. Failure to secure a deal is expected to spook financial markets and could disrupt peace in Northern Ireland.

Talks in London are expected to continue for the next few days.

Attention will today turn back towards the economic calendar with the final manufacturing PMI due to be released. The flash figure revealed that the sector had remained remarkably resilient despite the UK going back into lockdown. Expectations are for confirmation of 55.2, whereby the figure 50 separates expansion from contraction.

The Euro trended lower versus the Pound on Monday after German inflation data disappointed. German consumer prices fell further in November, pushed lower by a VAT cut introduced as part of the government’s stimulus support to help the economy recover from the fallout of the pandemic.

German CPI fell -0.7% year on year, down from -0.5% in the ptevious month. The reading was also worse than the 0.5% that analysts had pencilled in.

The ECB is expected to ease monetary policy in its December meeting with more bond purchases expected and subsidised loans to banks.

The final Eurozone manufacturing PMI read for November. The sector is expected to remain in expansion territory at 53.6.