EUR GBP Looking to Hold Gains Above 0.8500

The EUR GBP exchange rate was higher by 0.22% on Tuesday with the pair looking to hold recent gains above the 0.8500 level. The latest release of European manufacturing PMI activity showed that supply chain issues are still pressuring the rebound.

The EUR v GBP is trading at 0.8510 with a chance to push for 0.8650, where gains were capped in September.

Supply bottlenecks hurting the German economy

Supply bottlenecks have affected the German manufacturing sector for the third month in a row in October, according to a survey.

IHS Markit’s Final Purchasing Managers’ Index (PMI) for manufacturing, which makes up a fifth of Europe’s largest economy, came in at 57.8, slightly lower than the initial estimate of 58.2.

The outlook for factories has been hit by shortages of semiconductors and raw materials that are providing a headwind for the German auto industry.

Alongside higher energy prices, the component shortages have forced manufacturers to pass the added costs on to customers, raising further inflationary fears.

“According to surveyed businesses, the well-documented slowdown in autos production is dragging down other parts of the manufacturing economy with it, as firms in that sector scale back orders for components and materials,” said Phil Smith of IHS Markit.

“Worryingly, the supply problems took a turn for the worse in October, with lead times on purchases lengthening to the greatest extent for three months,” he added, saying that cost inflation has crept near the record highs seen in the summer.

“Manufacturers lost further confidence that these issues will be resolved sooner rather than later, with business expectations now at their lowest since August 2020,” he said.

The confirmation for UK PMI was a slight 0.1% better but was still affected by the same issues.

Macron backs down on French fishing threats

French President Emmanuel Macron has backed down from a threat to retaliate against the British for blocking French fishing boats from British fisheries.

Macron said the UK would “come back to us tomorrow with further proposals. We’ll see where we are at the end of the day”.

“We won’t be bringing in sanctions while we’re negotiating,” Macron added.

Macron’s decision followed an escalation in recent tensions with the UK-France fishing issue threatening to overshadow the COP26 climate talks. France had threatened to introduce additional customs controls on goods entering from the UK and also threatened to block UK fishing boats from France.

Boris Johnson’s office welcomed Macron’s decision in a statement, saying “we are ready to continue intensive discussions on fisheries.”

Downing Street added that Brexit Minister David Frost will travel to Paris on Thursday for in-person talks.

“We’ve always said we want to de-escalate this,” UK Environment Minister George Eustice told Sky News on Tuesday.

“We welcome the fact France has stepped back from the threats it was making.”

The fishing rights are a small fraction of both countries’ economy, but they have threatened the Brexit deal, alongside the Northern Ireland protocol squabbles.

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