UPDATE: Speculation over Theresa May’s future continued throughout the afternoon, with reports suggesting that letters from a dozen more MPs are required to trigger a no confidence vote.
As a result, this lingering sense of political uncertainty is likely to keep the GBP/EUR exchange rate treading water in the short term.
GBP/EUR Exchange Rate Fails to Maintain Its Upside Momentum Today
UPDATE: The Pound Sterling to Euro (GBP/EUR) exchange rate struggled to hold onto its early gains over the course of the morning thanks to the persistent sense of uncertainty that still hangs over UK politics.
Even in the absence of any fresh developments investors remain wary of the potential for a challenge against Theresa May’s leadership.
Coupled with the underwhelming nature of the Rightmove house price index this limited the scope for Pound Sterling (GBP) demand.
Pound Sterling Euro (GBP/EUR) Exchange Rate Benefits as Brexit Tensions Ease
As Conservative MPs still lack the 48 letters needed to trigger a vote of no confidence, the mood towards Pound Sterling (GBP) exchange rates improved after the weekend.
Although MPs continue to express discontent with the details of the proposed Brexit deal, the Pound Sterling to Euro (GBP/EUR) exchange rate pushed 0.3% higher as markets opened on Monday.
That being said, after a week of significant losses the Pound remains on the back foot, with a sense of Brexit-based uncertainty still hanging over the domestic outlook.
Strong Eurozone Construction Output Fails to Boost Euro (EUR) Demand
An unexpectedly strong month of Eurozone construction output in September failed to give Euro (EUR) exchange rates a rallying point.
While output rose by a solid 4.6% on the year, this was not enough to ease concerns over the health of the Eurozone economy.
The appeal of the single currency was also limited as the US and China failed to show signs of moving towards an easing of trade tensions over the weekend.
With US protectionism appearing unlikely to ease in the near future, slowing trade could pile further pressure on the Eurozone and Euro.
Will Narrowing UK Budget Deficit Help GBP/EUR Recover Further?
Unless UK political tensions show fresh signs of flaring, demand for the Pound could remain elevated in the near term as the currency continues clawing back some of last week’s losses.
Further support for GBP exchange rates may come on the back of Wednesday’s UK public sector net borrowing data.
Forecasts point towards the budget deficit narrowing -5.6 billion in October, suggesting that UK public finances are improving even in the face of political uncertainty.
Signs of greater economic resilience are likely to give Pound Sterling a boost against its rivals, easing concerns over the potential negative impact of Brexit.
If Theresa May fails to stave off a leadership challenge, however, the GBP/EUR exchange rate looks vulnerable to fresh losses.
Underwhelming Eurozone PMIs to Limit Euro (EUR) Upside
The Euro, meanwhile, could come under pressure on Friday if November’s raft of Eurozone PMIs fail to impress.
As forecasts suggest a modest loss of momentum on the month, this may encourage investors to sell out of the single currency, even though the PMIs are expected to remain within growth territory.
Any evidence that the Eurozone economy is continuing to slow in the face of global trade tensions and political unease is likely to weigh on EUR exchange rates.
However, if the Eurozone manufacturing and services sectors can demonstrate a more resilient month of growth this could give the Euro a leg up.
Worries over the Italian budget dispute may still limit the upside potential of EUR exchange rates, though, in the absence of any positive breakthrough.