Euro to Pound Exchange Rate Surges as Key UK Parliament Brexit Vote is Delayed
UK Prime Minister Theresa May shocked markets on Monday, by announcing that a highly anticipated UK Parliament vote on Brexit had been delayed a mere day before it was due to take place. The Euro to Pound Sterling (EUR/GBP) exchange rate surged in response.
Unless there are optimistic developments in UK politics soon, EUR/GBP is on track to see significant gains this week.
Since opening the week at the level of 0.8948, EUR/GBP has gained around a penny and currently trends near the level of 0.9031. EUR/GBP was unable to hold Monday afternoon’s three-month-high of 0.9082.
A lack of strong new reasons for investors to buy the Euro (EUR) limited the shared currency’s strength, but the currency still sustained significant Tuesday gains against a broadly weak Pound (GBP).
Fears about UK political stability and Brexit uncertainties have only intensified as the formal Brexit date draws nearer, making investors anxious about Britain’s economic outlook.
Euro (EUR) Exchange Rate Support Limited as Italian Political Jitters Return
The Euro has seen notable gains versus the Pound this week so far, but this has been more due to Pound weakness than Euro strength.
Weakness in the US Dollar (USD), which sees a negative correlation with the Euro, also supported the shared currency.
In terms of Eurozone news, the latest Eurozone data has been mixed and Eurozone political uncertainties continue to keep a lid on the shared currency’s strength too.
Monday saw the publication of Germany’s October trade balance results, which came in with a surplus that was slightly lower than expected. The nation’s exports and imports prints both beat forecasts however.
Demand for the Euro has also been limited by mixed reports regarding the status of Italy’s controversial budget plans, with some reports claiming that Italy and the EU are getting closer to reaching a compromise and others reporting that stances remain firm.
Pound (GBP) Exchange Rates Plummet on UK Political and Brexit Fears
Tuesday’s planned UK Parliament vote on Brexit was highly anticipated as the date on which the UK would finally begin a process of elimination regarding potential Brexit outcomes. Analysts anticipated that it would lead to some kind of clarity.
As a result, markets were shocked on Monday when UK Prime Minister Theresa May announced that the vote would be delayed.
May announced that she would attempt to secure extra assurances that the backstop would not be ‘indefinite’ from the EU, but did not confirm a new date for the vote.
This caused concern that the UK government was ‘kicking the can’, with some analysts even fearful that May will not put the vote to UK Parliament again until time has run out.
This has of course worsened UK economic concerns too. According to Ruth Gregory, Senior UK Economist at Capital Economics:
‘We would not be surprised if Brexit uncertainty – which we estimate has knocked 0.5 percentage points off growth since the referendum – starts to weigh more heavily on the economy.’
Euro to Pound (EUR/GBP) Exchange Rate to be Driven by Political Developments
Yesterday’s UK political developments shook global markets, and it’s likely that potential developments in UK politics and Brexit will remain in focus for forex investors for much of this week.
Markets are hoping that UK Prime Minister Theresa May will secure assurances from the EU and announce a new vote sooner rather than later.
However, there is also the fear that UK Parliament could attempt to push a no confidence vote on UK Prime Minister Theresa May’s government.
Fears of an imminent political shakeup are likely to keep Sterling under pressure. In fact, the Pound is unlikely to see much of a solid recovery until there is some kind of clarity on how the Brexit process will unfold.
Eurozone data has the potential to influence EUR/GBP movement in the coming days too.
Eurozone industrial production stats will be published on Wednesday, followed by German inflation and the European Central Bank’s (ECB) anticipated December policy decision on Thursday.
Of course, any developments regarding Italy-EU budget tensions may also influence the Euro to Pound (EUR/GBP) exchange rate.
