The Euro has fallen further against the Pound on Monday’s afternoon session, trading lower at a rate of 0.8860.
The German political situation remains an unsolved issue, with a conversation between Angela Merkel and President Frank-Walter Steinmeier failing to break the current deadlock.
As traders speculate about possible outcomes, a third option has been added to the list of potential solutions.
With the SPD refusing to form another ‘grand coalition’, the FDP party could return to talks, although their dramatic withdrawal suggests that this is a distant possibility at the present time.
(First published November 20th, 2017)
The Euro has been dragged down against the Pound today, as traders anxiously watch the turbulent situation of German politics.
- EUR GBP rate slips to 0.8897 – GBP EUR trades higher at 1.1237
- Euro tumbles on German upset – Coalition talks jeopardised after FDP Party leaves
- Pound advances on Euro weakness – Pre-budget jitters still present
- Will Euro firm on Draghi remarks? – Pound losses possible on borrowing stats
The Pound has risen thanks to the weak Euro, but losses may be ahead on national budget news.
Euro Pound Losses caused by German Government Uncertainty
German political news has led to clear Euro losses today, with the EUR/GBP exchange rate dropping by -0.3%.
While the Euro has seen respectable gains elsewhere, it remains vulnerable to continued shocks concerning the future German government.
The issue has been that German coalition talks have foundered after the FDP party withdrew from negotiations.
It had been hoped that Angela Merkel, heading the CDU/CSU alliance, would be able to form a working coalition after the September election.
The CDU/CSU would have needed to form a ‘Jamaica’ government, making a majority with elected FDP and Green Party members.
The FDP’s withdrawal throws these plans into chaos, however, leaving Merkel with two major options.
The first is to press ahead with a coalition with the Greens, which would form a tenuous and vulnerable minority government.
The other choice is to hold a second election, but this risks draining the CDU/CSU of even more votes after the battering they sustained in the initial 2017 ballot.
GBP Euro Rate Firms ahead of High-Impact Budget News
The Pound has dominated against the Euro during trading today, making clear gains against its weakened rival.
UK news has been thin on the ground, with traders mainly focusing on Wednesday’s November budget announcement.
The current attitude is that Chancellor Philip Hammond may find himself forced to consider reduced austerity measures, although that is no guarantee of a sudden spending spree.
Euro to Pound Forecast: Recovery possible on Draghi Speech
The Euro has a slim chance at recovering against the Pound later today, when European Central Bank (ECB) President Mario Draghi gives a speech.
Draghi will be making introductory statements at a European Parliament’s Committee on Economic and Monetary Affairs (ECON) event.
Among other subjects, Draghi will be discussing possible adjustments to monetary policy. Any signs of tighter policy measures in the future could trigger a EUR/GBP recovery.
The Pound might not have much luck on Tuesday, as the currency could naturally depreciate due to trader uncertainty about Wednesday’s budget announcement.
Additionally, the morning will bring the government’s public sector borrowing stats for October.
Estimates are for the previous deficit to expand from -5.33bn to -6.6bn, which will go against Hammond’s goal of hitting a budget surplus in the coming years.
Also out will be Confederation of British Industry (CBI) industrial orders data. Estimates are for rise in the index from -2 to 3 points, which would signify minor sector growth.
Current Interbank EUR GBP Exchange Rates
At the time of writing, the Euro to Pound (EUR GBP) exchange rate was trading at 0.8897 and the Pound to Euro (GBP EUR) exchange rate was trading at 1.1237.