The pound has risen against the euro and some economists anticipate further gains as market expectations for a Bank of England interest rate rise in December have grown even stronger. Over the weekend, Bank of England (BOE) Governor Andrew Bailey said that inflation could be "elevated for longer" but there was also a chance that it is not as persistent as initially feared. The comments have not had an impact on the market yet. According to other analysts, any potential upside for the pound might be limited or stalled due to a stronger US dollar and persistent Brexit worries.

Pound to euro exchange rate

The pound managed to enter the new week with forte and despite a stronger US dollar, as the euro declined following last week’s news that Austria and the Netherlands were reinstating a form of “lockdown.” The news of a potential lockdown has created concerns for the Eurozone economic outlook in the short-term and the single currency. Additionally, it has reignited concerns of new lockdown restrictions in other European countries.

The pound to euro exchange rate will remain sensitive to any news over the coming days about other European economies following Austria’s and the Netherlands’ new coronavirus-related restrictions.

The pound has strengthened against the euro following October’s inflation figures and the latest UK employment data. Additionally, last week’s parliamentary testimonies by members of the Bank of England have helped support the case for a December interest rate rise.

The strong labour market release has assured markets that a rate rise at December’s MPC meeting is very much a possibility. If this is repeated in next month’s release, due to be out two days before the MPC’s decision, could be enough to result in a rate hike before Christmas.

Analysts believe that the differences between the Bank of England’s and the European Central Bank’s monetary policies might be enough reason for the pound to rise against the euro. The BoE is open to the prospect of a rate hike, whereas the ECB is still on hold.

What to expect the week ahead

  • Bank of England

BoE Governor Andrew Bailey and other members of the Monetary Policy Committee will be speaking at various events throughout the week, with Tuesday’s talk on inflation from Jonathan Haskel at the Adam Smith Business School in Glasgow and chief economist Huw Pill’s appearance on Friday at an online Confederation of British Industry event.

  • Brexit

On Sunday, the European Commission vice-president Maroš Šefčovič has urged UK’s Brexit minister David Frost to end his “political posturing” in relation to the negotiations on the Northern Ireland protocol and accept that he cannot change Brexit. Lord Frost demanded “more urgency” so the dispute can be resolved but their comments demonstrate that both sides remain far apart.

Šefčovič told BBC One’s The Andrew Marr Show that he did not expect Frost’s call for urgency because “sometimes I have the feeling that in our meetings I’m the only one who pushes for urgent solutions”.

 

In an article in the Mail on Sunday, Frost explained that the EU’s “solutions don’t deal with the problems”, and that goods “which both we and the EU agree aren’t going to leave Northern Ireland should not be treated as if they were moving from one country to another – because they are not,” he said. “But at the moment the EU says it is impossible. I urge them to think again.”

Frost’s comments suggest that both sides remain firm in their positions and that triggering article 16 remains a possibility.

France’s fishing row with Britain has also added to the tensions, following France’s Minister for European Affairs Clement Beaune’s tweet on Sunday: “I will be in Brussels tomorrow to continue this essential negotiation for France and the EU. Our objective has not changed: to enforce the agreement, to obtain our licences, to defend the interests of our fishermen.” His comments reflect the French president’s remarks who accused the UK of “playing with our nerves" on the issue. Speaking on Sunday, Macron said: “We are going to continue to fight, we will not abandon our fishermen.”

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