GBP/EUR Exchange Rate Weakens as No-Deal Risks Rise
Updated: The Pound to Euro (GBP/EUR) exchange rate continued to trend lower through Wednesday afternoon after the Queen consented to Boris Johnson’s request to prorogue Parliament.
It's official: pic.twitter.com/NFkWlGu40Y
— Heather Stewart (@GuardianHeather) August 28, 2019
Parliament is now scheduled to be suspended for up to five week’s starting in early September, greatly limiting the amount of time oppositions MPs have to pass legislation aimed at preventing a no-deal Brexit.
The move underscores the current uncertainty surrounding Brexit and could put Sterling on the path to further weakness in the coming weeks.
GBP/EUR Exchange Rate Plummets on Renewed No-Deal Brexit Fears
The Pound to Euro (GBP/EUR) exchange rate has fallen this morning amidst rumours the UK government may try and prevent efforts to block a no-deal Brexit by proroguing parliament.
At the time of writing the GBP/EUR exchange rate is trading at around €1.0993, down roughly 0.7% so far this morning.
Pound (GBP) Plunges on Reports Parliament may Be Suspended Early
The Pound (GBP) is beating a hasty retreat this morning, following media reports that the UK government will ask the Queen to suspend parliament just days after MPs are due to return from summer recess.
The BBC’s political editor, Laura Kuenssberg suggests the move is to allow the government to lay out its future plans in a Queen’s speech on 14th October.
No 10 source 'new Queen's Speech will be about an agenda for improving the NHS, helping police fight violent crime, stopping violent criminals getting out early, investing in science + infrastructure, and attacking the cost of living with aggressive tax cuts + other measures'
— Laura Kuenssberg (@bbclaurak) August 28, 2019
However, this will also result in MP’s having barely any time to pass legislation which could block Boris Johnson’s government from pursuing a no-deal Brexit.
The news has unsurprisingly been met by criticism from MP’s, with Labour deputy leader Tom Watson describing the move as and ‘utterly scandalous affront to our democracy’.
Opposition parties yesterday agreed to a strategy to block a no-deal Brexit, sending GBP exchange rates higher as they outlined plans to achieve this by legislative measures.
Observers suggest the move to prorogue parliament greatly increases the risk of a no-deal Brexit, resulting in a sharp sell-off of Sterling this morning.
Italy Uncertainty Tempers Euro’s (EUR) Gains
At the same time, while the Euro (EUR) is surging against the Pound (GBP) this morning, it is struggling to find support in broader trade amid persistent political uncertainty in Italy.
Italian politicians are running out of time to form a new coalition government before a deadline imposed by President Sergio Matarella expires later this morning.
Italy’s center-left Democratic Party (PD) and the 5-Star Movement are currently in talks to form a new coalition which will prevent the country going back to the polls for snap elections.
However the two parties appeared deadlocked over whether Giuseppe Conte should remain as Prime Minister after resigning in dramatic fashion last week.
5-Star are pushing for his return, however PD are resistant, calling for a ‘clean break’ from the previous government.
Should the talks fail it’s expected a far-right coalition led by the League’s Matteo Salvini would claim victory in subsequent elections.
GBP/EUR Exchange Rate Forecast: Will the Euro Stumble on Eurozone Inflation Figures
Looking ahead to the second half of the week, the Pound to Euro (GBP/EUR) exchange rate may recoup some of its losses following the publication of the Eurozone’s latest CPI figures.
Economists forecast these will show inflation in the Eurozone languished at a two-year low of just 1% this month.
This is likely to boost expectations of a ‘substantial’ stimulus package from the European Central Bank (ECB) next month as inflation remains well below the bank’s target of 2%.
In the absence of any notable UK economic data, GBP investors are likely to remain preoccupied by Brexit through the remainder of the week, possibly limiting any upside potential in the Pound.