Pound Sterling to Euro Exchange Rate Rebounds Slightly on Hopes for Article 50 Delay

Pound to Euro Exchange Rate Higher on Hopes that ‘No-Deal Brexit’ Can Be Avoided

Last week saw quieter market activity amid the festive holiday period, but Brexit jitters ultimately kept pressure on the Pound Sterling to Euro (GBP/EUR) exchange rate while the Euro (EUR) benefitted from weakness in its rivals.

After opening last week, GBP/EUR spent most of the week fluctuating. The interbank level touched on a low of 1.10 towards the end of the week before recovering and ending the week just below its opening levels.

At the time of writing on Monday though, GBP/EUR was climbing slightly. GBP/EUR trended higher than last week’s opening levels amid speculation that the Brexit process could be delayed if UK Prime Minister Theresa May’s Brexit deal is not confirmed.

The biggest threat to the UK economy in the eyes of economists and many politicians is a potential ‘no-deal Brexit’, which could occur if the UK leaves the EU without a deal on the 29th of March – now less than three months away.

Hopes that this deadline could be delayed and allow for more time for a solution to be reached helped the Pound to Euro (GBP/EUR) exchange rate to recover slightly today.

Pound (GBP) Exchange Rates Climb on Possibility of Brexit Process Delay

Many senior Conservative and Labour Party MPs have indicated they are planning to force the UK Brexit process to be delayed if UK Prime Minister Theresa May’s negotiated UK-EU Brexit plan fails to pass through UK Parliament next month.

May’s Brexit plan is expected to go to a UK Parliament vote in the middle of the month, following the debate resuming next week.

According to a report from The Observer, cross-party talks have been taking place for much of the past month to formulate a plan to force the UK government to delay the formal Brexit date – the 29th of March – if the negotiated plan fails to pass.

A senior Conservative Party source reportedly said:

‘If we are determined to avoid a no deal, and the prime minister’s deal fails, we will have to ask to stop the clock, and that will give time for us to decide to go whatever way we decide thereafter’

Hopes that the Brexit process could be delayed, allowing for more time for a shift in direction or to prevent the possibility of a worst-case scenario ‘no-deal Brexit’, bolstered Pound (GBP) demand on New Year’s Eve.

Euro (EUR) Exchange Rates Fail to Hold Ground as Rivals Steady

Much of last week’s Euro (EUR) strength was due to broad weakness in major rivals like the Pound (GBP) and especially the US Dollar (USD) last week.

As the US Dollar is the Euro’s biggest rival, the two currencies often see a negative correlation.

This meant that as the US Dollar was weakened by fears of a slowing US economy, as well as some mixed US data and lower Federal Reserve interest rate hike bets, the Euro became more appealing in comparison.

This, as well as optimistic developments between Italy and the EU regarding Italy’s budget plans, kept the Euro afloat last week.

However, on Monday demand for the Euro’s rivals rose again.

The US Dollar (USD) steadied following a week of weakness, while the Pound benefitted from Brexit speculation. This, combined with weaker Eurozone data in recent weeks, left the Euro unappealing and made it easier for the Pound to Euro (GBP/EUR) exchange rate to climb.

Pound to Euro (GBP/EUR) Exchange Rate Investors Await PMI Results

While Pound (GBP) investors will be highly anticipating Brexit developments throughout the first month of 2019, the Pound to Euro (GBP/EUR) exchange rate could still be influenced by PMI data in the coming week.

Following New Year’s Day celebrations, markets will reopen on Wednesday and December’s final UK and Eurozone manufacturing PMI results will be published.

Eurozone manufacturing data could influence demand for the Euro (EUR) if it surprises investors, but Britain’s manufacturing data is unlikely to be particularly influential.

Eurozone loan data and UK construction data is unlikely to influence GBP/EUR movement much either.

Instead, investors will look to the slew of data due for publication at the end of the week, including inflation data from France and the overall Eurozone, as well as the Eurozone’s final December services PMI figures.

Any surprising Brexit developments this week, ahead of next week’s resumption of the UK Parliament debate, could also influence the Pound to Euro (GBP/EUR) exchange rate.

Josh Jeffery

Contact Josh Jeffery