GBP/EUR Exchange Rate Weakens on Rising Brexit Uncertainty
UPDATE: The Pound Euro (GBP/EUR) exchange rate remains on the defensive this afternoon as Brexit uncertainty continued to pressure Sterling sentiment.
The latest concerns centre on the publication of the government’s Brexit legal advice, a reduced version of which was released this afternoon after considerable pressure from MPs.
Critics of Theresa May’s Brexit deal believe the full legal advice would show that the withdrawal agreement could tie the UK to EU customs regulations indefinitely, something which would likely kill all chances of the deal surviving a parliamentary vote next week.
GBP/EUR Exchange Rate Slides as BoE Warns of Consequences of No-Deal Brexit
The Pound Euro (GBP/EUR) exchange rate softened last week, driven lower by some dire warnings from the Bank of England (BoE) on the consequences of the UK leaving the EU without a deal.
In its report comparing Theresa May’s Brexit deal with a no-deal Brexit, the BoE’s worst case scenario forecast a disruptive exit from the EU could cause the UK economy to shrink as much as 8% and may lead to the biggest crash since the Great Depression.
Sterling losses were then exacerbated by further comments from the BoE’s Mark Carney on Thursday, in which he suggested that large parts of the UK economy were still ‘not ready’ for a no-deal Brexit.
However the pairing was able to rally at the end of the session following the publication of the Eurozone’s latest CPI figures as a slide in underlying inflation was seen as potentially weakening the case for the ECB to hike interest rates in the coming year.
Pound Euro (GBP/EUR) Exchange Rate Remains Pressured by Brexit Legal Paper Demand
The Pound Euro (GBP/EUR) exchange rate is struggling at the start of this week’s session as Brexit jitters continue to drag on Sterling sentiment.
The latest fears come as Theresa May is under pressure to publish the full legal advice on her Brexit deal, which some MPs think could scupper her deal amid suggestions the UK could be indefinitely tied to EU customs rules.
At the same time the release of the UK’s latest manufacturing PMI is also dragging on the Pound this morning despite a rise in headline figures.
This is mostly down to a second consecutive contraction in new export orders and a slump in confidence, with the upswing in growth being attributed to temporarily strong domestic demand amid reports that businesses are stockpiling ahead of Brexit.
Ladies and gentleman — we have stockpiling! 🏭
• UK factory PMI rises much more than expected to 53.1
• Even as export orders contract for 2nd month
• BUT! IHS Markit says pickup not really down to healthy domestic demand
• It's stockpiling
• Optimism at 27-month low
— Andy Bruce (@BruceReuters) December 3, 2018
GBP/EUR Exchange Rate Forecast: Weak Services PMI to Dent Sterling Sentiment?
Looking to the week ahead, in terms of data the UK’s upcoming Services PMI is likely to exert the most influence on the Pound Euro (GBP/EUR) exchange rate.
This may result in Sterling weakening in the mid-week as economists forecast growth in the UK’s all-important service sector will have remained subdued in November.
On top of this, Brexit uncertainty is likely to continue to cap demand for the Pound throughout the week amid growing concerns that Theresa May lacks the support needed to push her Brexit deal through the House of Commons in next week’s vote.
Jakob Ekholdt Christensen, Chief Analyst at Danske Bank suggests:
‘At this point, it looks more likely than not that the Brexit deal will not be accepted when the House of Commons votes on 11 December, suggesting that Brexit could remain unresolved after the vote and at least keep GBP volatile for longer. However, any indications that this might change would be supportive for GBP.’
Meanwhile the release of the Eurozone’s latest retail sales figures may help bolster the Euro this week as analysts predict sales growth will have rebounded in October after flatlining the previous month.