Pound to Euro Exchange Rate Rally Runs Out of Steam as Brexit Outlook Still Unclear
It’s been a hectic week for the Pound Sterling to Euro (GBP/EUR) exchange rate, and while the worst may be behind the Pound (GBP) for now there is still potential for significant developments and movement in the coming sessions.
Since opening this week at the level of 1.1068, GBP/EUR has seen highly volatile movement. GBP/EUR touched on a weekly low of 1.0939 on Tuesday before rebounding around a cent over Wednesday’s session.
Overnight, GBP/EUR touched on a fresh monthly high of 1.1108, but has since slipped back from this high and trends near the level of 1.1085 at the time of writing.
The Pound to Euro exchange rate’s current movement is narrow, and investors are now awaiting further major UK political developments.
Pound (GBP) Exchange Rate Rally Slows Following Wednesday Surge as Uncertainty Persists
On Wednesday, UK Parliament dealt a series of blows to the early-days premiership of Prime Minister Boris Johnson.
MPs successfully voted to prevent a no-deal Brexit in the House of Commons, and the vote will now be sent to the House of Lords where it is also expected to pass.
The expectation of a smooth House of Lords process has bolstered hopes that the bill to rule out a no-deal Brexit will successfully pass through all obstacles before the prorogation of parliament next week.
However, it is now also generally expected that a general election will happen in the coming months too. Britain’s opposition Labour Party is expected to vote in favour of a general election once the bill to avoid a no-deal Brexit has received royal assent.
The expectation for even further political uncertainty is keeping the Pound under pressure.
Euro (EUR) Exchange Rate Losses Limited amid Latest US-China Trade Hopes
Demand for the Euro (EUR) has been mixed this week.
Some notable Eurozone data has beaten forecasts, and Italy’s new more EU-friendly coalition government has been confirmed. However, some Eurozone data, including this morning’s German factory stats, have disappointed.
Germany’s July factory orders report unexpectedly sunk, keeping investors anxious that Germany could fall into recession soon.
Ouch! German factory orders sink, raising risk of recession. Demand fell 5.6% in Jul (YoY), 2.7% (MoM) exceeding the estimate for 1.4% decline. Manufacturing slump drags on as global trade tensions rise. https://t.co/hmxX8qsgVS pic.twitter.com/U4d9yeemYy
— Holger Zschaepitz (@Schuldensuehner) September 5, 2019
Still, the Euro was able to see mostly steady movement against Sterling today despite this.
The shared currency has benefitted from weakness in its rival the US Dollar (USD), as the latest optimistic US-China trade developments bolstered market risk-sentiment.
Pound to Euro (GBP/EUR) Exchange Rate Gains May Be Limited as Election Expected
Investors may not have much reason to keep buying the Pound to Euro (GBP/EUR) exchange rate for now, as despite attempts to prevent a no-deal Brexit going well so far there is more significant uncertainty ahead.
If the bill succeeds by next Monday, it is likely that the opposition party will agree to hold a general election.
A strong election win for Boris Johnson’s Conservative Party would make a no-deal Brexit even more likely, but a win for opposition parties would lead to other fresh uncertainties. According to Petr Krpata from ING:
‘Indeed, recall the GBP price action earlier in the year, when GBP strengthened first on the hopes of the Article 50 extension (as is happening now) but eventually depreciated meaningfully as UK politics became even more fragmented and the risk of a no-deal Brexit rose. We look for a similar roadmap this time around.’
The Euro’s movement, on the other hand, may remain fairly low-influence in comparison.
Euro investors will be closely watching tomorrow’s Eurozone growth rate data of course, but unless it influences European Central Bank (ECB) speculation notably the Euro’s reaction may be limited.
As a result, while Sterling volatility will continue to drive the Pound to Euro (GBP/EUR) exchange rate, the high volatility means that the pair may struggle to sustain gains.