Falling Odds of No-Deal Brexit Prompt Pound Sterling Euro (GBP/EUR) Exchange Rate Rally
News that the Labour Party could back a move to prevent a no-deal Brexit scenario saw the Pound Sterling to Euro (GBP/EUR) exchange rate surge today.
While this potential support does not guarantee the success of the move this was still enough to encourage investors, reducing the odds of the UK leaving the EU without a deal.
Speculation over a possible extension to the March deadline also gave Pound Sterling (GBP) cause for confidence over the course of the day.
This all helped to overshadow the disappointing CBI business optimism index, which weakened further than forecast in January to fall from -16 to -23.
Even though businesses remain wary of the fallout of Brexit investors were quick to dismiss this latest sign of unease.
Weak Eurozone Consumer Confidence Keeps Euro (EUR) Exchange Rates Under Pressure
Confidence in the Euro (EUR) diminished, meanwhile, as the latest Eurozone consumer confidence index proved weaker than anticipated.
As sentiment within the currency union continued to sour in January this left little room for optimism in the economic outlook.
With consumers likely to rein in their spending as a result of this diminished confidence EUR exchange rates naturally trended lower in the wake of the data.
If January’s raft of Eurozone manufacturing and services PMIs also show signs of weakness tomorrow this could give the GBP/EUR exchange rate an additional boost.
Although markets already anticipate a slower year of economic growth for the Eurozone an underwhelming set of PMIs could weigh heavily on the Euro.
GBP/EUR Exchange Rate Volatility Forecast on ECB Announcement
Additional volatility is likely in store for the GBP/EUR exchange rate, however, in the wake of the European Central Bank (ECB) policy announcement.
Thanks to recent signs of a slowdown within the Eurozone economy ECB policymakers look set to take a more cautious view on monetary policy.
As long as the ECB appears to remain on track to leave interest rates on hold for the foreseeable future the Euro is likely to come under pressure.
Analysts at TD Securities noted:
‘We think they will look through recent data disappointments and leave the balance of risks unchanged. The overall tone of the opening statement & presser should therefore sound cautious but constructive. The dovish risks we highlight are unlikely to materialize before mid-year.’
A more upbeat message from policymakers could encourage the single currency to return to a stronger footing against its rivals, though.
If the central bank expresses fresh confidence in the resilience of the Eurozone economy the GBP/EUR exchange rate could reverse some of its recent gains.
