UPDATE: Calls for a vote of no-confidence in Theresa May picked up over the course of the afternoon, keeping the Pound under sustained pressure and on track for its largest one-day fall in more than a year.
As May’s Brexit deal looks increasingly dead in the water investors are unlikely to see any reason to buy back into GBP in the near future.
Brexit Risks Keep Pound Sterling Euro (GBP/EUR) Exchange Rate Under Pressure
UPDATE: As concerns continued to mount over Theresa May’s future as prime minister the mood towards Pound Sterling (GBP) remained bearish.
With support for the Brexit deal reached between the UK and EU on Tuesday still decidedly lacking among MPs the sense of political risk has picked up further.
The threat of a potential leadership challenge against May continues to limit the scope for any Pound Sterling to Euro (GBP/EUR) exchange rate recovery this afternoon.
Cabinet Resignations over Brexit Deal Drag Pound Sterling Euro (GBP/EUR) Exchange Rate Lower
The resignation of Brexit secretary Dominic Raab prompted Pound Sterling (GBP) to slump sharply this morning as worries over the future of Theresa May’s Brexit agreement mounted.
GBP exchange rates plunged in the wake of Raab’s announcement as this dealt a fresh blow to Tuesday’s breakthrough deal between the UK and EU.
With support for the agreement appearing limited investors were inclined to sell the Pound once again, wary of further resignations.
As May looks set to struggle to push the Brexit deal through Parliament the Pound’s previous sense of optimism quickly faded, with an imminent resolution to the uncertainty appearing increasingly unlikely.
This renewed sense of political turmoil promptly drove the Pound Sterling to Euro (GBP/EUR) exchange rate to a two-week inter-bank low of €1.13 as the mood of investors rapidly soured.
Disappointing UK Retail Sales Add to GBP Exchange Rate Weakness
A fresh monthly contraction in UK retail sales added to the bearishness of GBP exchange rates, meanwhile.
As sales unexpectedly declined -0.4% on the month in October this raised concerns over the underlying health of the domestic economy.
Although this patch of weakness follows strong summer retail sales growth investors were still discouraged by the results, putting further pressure on the Pound.
With consumers reining in their spending the growth outlook appears diminished, even in the wake of stronger wage growth data.
Brexit-based uncertainty could dent sales further in the months ahead, keeping the Pound on the back foot for the foreseeable future.
Euro (EUR) Softens After Narrowed Eurozone Trade Surplus
While the Eurozone trade surplus narrowed further than forecast in September this was not enough to shore up the GBP/EUR exchange rate.
Demand for the Euro (EUR) diminished as the trade balance narrowed from 16.8 billion to 13.4 billion, demonstrating the negative impact that global trade tensions have had.
This underwhelming result further undermined confidence in the outlook of the Eurozone economy, with the currency union looking set to slow further before the end of the year.
With political concerns and uncertainty over Brexit also weighing on the appeal of the single currency there was little in the way of support for EUR exchange rates this morning.
Optimistic ECB Commentary to Offer Euro (EUR) Exchange Rate Boost
Comments from European Central Bank (ECB) President Mario Draghi may give the Euro a rallying point ahead of the weekend, however.
If Draghi opts for a more hawkish tone this could encourage the single currency to trend higher across the board, with investors still betting that the central bank will wind down its quantitative easing programme in December.
Although interest rates are expected to remain on hold for the foreseeable future signs of cautious optimism from Draghi may give EUR exchange rates a boost.
On the other hand, any expression of worry over the economic outlook could encourage investors to pull out of the Euro tomorrow.