EUR GBP Looks to Article 16 for Further Gains

The EUR GBP exchange rate will look to secure a low near the 0.8500 level after the Bank of England forced an unwind of interest rate expectations last week. Traders are adjusting their rate hike path lower for the BoE and the Brexit tensions have returned with the recent fishing spat with France and the Article 16 talk.

The EUR v GBP is trading at 0.8560 with resistance ahead at the May and September highs near 0.8660.

Market looks to European economic data on Tuesday

Monday may be a quiet day for the EUR GBP with traders looking to data on Tuesday. The headline figures will be ZEW economic sentiment figures for the German and Eurozone economies.

There are also trade figures to be analysed for France and Germany. Another speech is due from ECB President Christine Lagarde but that will not bring anything new that we haven’t heard recently.

Germany’s economy has struggled with supply chain and labor shortage issues and the ZEW figures have retreated from a high of 84.4 in May to 22.3. The latest figures are expecting another drop to 20.

The headline data for the week will likely be a day later as Germany also releases inflation data. The previous number was the highest since 1993 and further increases could put pressure on the ECB after recent criticism from German officials and the media.

Another headwind for Europe is the record level of daily virus cases in Germany last week. The country’s health ministers are set to meet and decide on their plan of action to slow the spread and that could weigh on the economy, which is already struggling to see growth.

Traders turn attention to Brexit headlines

After the anticipation of the Bank of England rate meeting last week, traders will turn their attention to the Northern Ireland protocol issue.

The Irish foreign minister has said that the UK government is “laying the foundation” to trigger article 16 which he said would be in “bad faith”. The protocol was included in the Brexit deal agreed to prevent a hard border with Ireland.

On Sunday Simon Coveney said the “messages” that were coming from political parties in Northern Ireland, the European Commission and others were saying that London was preparing to trigger Article 16 after the COP26 climate summit concludes.

Coveney told Irish national broadcaster RTE that such a move would be a “significant act that would damage the relationship between Britain and Ireland”.

“I think all the evidence now suggests that the British government are laying the foundations to trigger Article 16. That is a worry – I think we need not to be naive in terms of what’s happening.”

The EU may argue that the larger Brexit trade deal only happened with the sum of all parts. Therefore, if the UK triggers Article 16 the EU may collapse the trade deal and the pound sterling could see a return to dramatic Brexit price swings.

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