Euro to Pound Exchange Rate Slides Lower on Brexit Speculation and Hopes
Last night, the UK government finally held the major UK Parliament vote on its long-negotiated UK-EU Brexit withdrawal deal. However, while the UK government’s position saw huge defeat the Euro to Pound Sterling (EUR/GBP) exchange rate continued to tumble.
Despite the fresh Brexit uncertainty, investors have been buying Sterling (GBP) versus an unappealing Euro (EUR) this week.
EUR/GBP opened the week at the level of 0.8930 and has since fallen around half a pence, briefly touching a monthly low of 0.8847 this morning before trending closer to the level of 0.8861 at the time of writing.
Investors bought the Pound overnight and this morning despite the UK government’s defeat on Brexit, as the vote gave markets a better idea of where UK MPs stood on issues like a No-deal Brexit.
A No-deal Brexit is now looking less likely to many investors, as MPs have shown they are keen to avoid the possibility. A general election is also looking unlikely with the UK government looking like it has enough support to survive an upcoming confidence vote.
Essentially, as a delay to Brexit looks increasingly likely and MPs look most willing to either renegotiate a soft Brexit or aim for a second referendum, the Pound has actually become more appealing.
Euro (EUR) Exchange Rates Fail to Find Fresh Support in Eurozone Data
The Pound has been able to more easily sustain gains against the Euro, as the latest data from the Eurozone has given investors little reason to buy the shared currency.
This morning, Germany’s final December Consumer Price Index (CPI) inflation rate report was published, and all major prints met expectations.
This meant that German inflation slowed from 2.3% to 1.7%.
It followed Tuesday’s data, which revealed that Germany’s Gross Domestic Product (GDP) growth rate had avoided a technical recession in 2018, but had still slumped to the slowest yearly growth rate in years.
This data has further confirmed market concerns that the Eurozone economic outlook is weakening, leaving the currency unappealing.
Pound (GBP) Exchange Rates Climb as Investors Digest Last Night’s Brexit Vote
The UK government’s negotiated UK-EU Brexit withdrawal deal was defeated in UK Parliament, by a shocking 432 to 202. Much of the UK government’s own Conservative Party voted against it.
With a majority of over 200 against the deal, it was the biggest government defeat in the history of the House of Commons.
The size of the opposition to the deal left investors confident that the recent antagonism towards the possibility of a No-deal Brexit in Commons was also serious.
This bolstered market hopes that a worst-case scenario No-deal Brexit would be avoided, as MPs begin to search for an alternative resolution to the complex issue of Brexit.
Following the vote, the opposition Labour Party tabled a no-confidence vote in the UK government in the hopes of sparking a general election.
However, unlike last night’s Brexit vote, the Conservative Party and the allied Democratic Unionist Party (DUP) is expected to vote in support of the UK government. This means that the government is expected to survive the no-confidence vote.
According to Kit Juckes from Societe Generale:
‘The UK voted for Brexit, markets priced it in (to a large degree) and now are watching, slack-jawed, as the Government tries to find a path to the exit which it can rally politicians behind.
Today’s confidence vote isn’t quite a done deal and so if the Government survives, sterling should get a bit of a lift.’
What’s Next for Brexit and the Euro to Pound (EUR/GBP) Exchange Rate?
As investors continue to digest last night’s Brexit vote and anticipate the upcoming confidence vote tabled against the UK government, Sterling may continue to edge higher unless No-deal Brexit fears worsen.
The Euro to Pound (EUR/GBP) exchange rate may be in for further losses if the UK government confirms that it will delay the formal Brexit date from the 29th of March, something that a rising number of analysts and investors are already taking for granted.
EUR/GBP could also slump in the coming days if the UK government shows any signs that it may consider a second Brexit referendum, or an even softer Brexit.
The UK government is under pressure to announce its plans for the next step it will take in the Brexit process within a matter of days, potentially giving Pound investors plenty to react to in the coming days.
Demand for the Euro, on the other hand, could be driven by any surprising prints in tomorrow’s Eurozone Consumer Price Index (CPI) inflation rate report.
Eurozone inflation is expected to have slowed from 1.9% to just 1.6% year-on-year. If the data comes in stronger than expected, the Euro to Pound (EUR/GBP) exchange rate may have an easier time holding its ground later in the week.