Pound Euro (GBP/EUR) Exchange Rate Reacts to Cross-Party Backlash to Parliament Suspension

GBP/EUR Exchange Rate Rangebound as Cross-Party Alliance is Set to Clash with Tories

The Pound Euro (GBP/EUR) exchange rate stabilised at €1.101 this morning as UK markets turned the spotlight on opposition party reactions to Prime Minister Boris Johnson’s proroguing of parliament.

The divisive move could lead to a parliamentary clash next week as the cross-party alliance attempt to fast-track legislation and force the Prime Minister to extend Article 50, effectively delaying the UK’s departure from the European Union.

Former Chancellor of the Exchequer, Philip Hammond, commented:

‘At a time of national crisis parliament must be able to meet to hold the government to account and to represent our constituents and it is profoundly undemocratic to shut parliament down to stop it doing its job. We are determined parliament will show its resolve to stop a no-deal Brexit… We will have to try to do something when parliament returns next week.’

Sterling steadied against the Euro in response, with a feasible opposition to Boris Johnson and a no-deal Brexit now considered more likely.

EUR/GBP Exchange Rate Flat as Spanish Inflation Hits a Three-Year Low

The Euro declined this morning following the weaker-than-expected flash Spanish inflation figure for August, which fell from 0.5% to 0.3% – a three-year low.

Today’s Spanish data release leaves single currency traders cautious ahead of the German inflation figure for August. As the EU’s largest economy, Germany is a litmus test for Eurozone inflation across-the-board. Consequently, the Euro could recover if German inflation confirms consensus and rises from 1.1% to 1.2%. Fears for a German recession in the near-term would also ease.

Meanwhile, today saw German unemployment hold steady at 5% for the fourth consecutive month.

Carsten Brzeski, a Chief Economist at ING, gave a pessimistic assessment:

‘The negative impact of the industrial meltdown of the last twelve months has started to spread to other parts of the German economy… All of this only means that the protection shield against the industrial slowdown and external woes is getting thinner if not wearing out. This is a stagnation and not a crisis.’

GBP/EUR Outlook: Could Euro weaken if Inflation Falls Below ECB’s Target?

The Pound could fall tomorrow if August’s GfK consumer confidence figure confirms consensus and eases from -11 to -12.

Meanwhile, Euro traders will be awaiting tomorrow’s publication of August’s flash Eurozone inflation figure, which is expected to rise from 0.9% to 1% on the year.

However, as this is below the ECB’s target of 2%, September rate cuts and other stimulus measures may be on the cards and could see the Euro fall.

Tomorrow’s publication of July German retail sales are forecast to improve from -1.6% to 3.3%.

The GBP/EUR exchange rate will likely remain volatile towards the end of this week as UK political tensions escalate over Brexit and the Conservative Government’s controversial move to suspend parliament.

David Moore

Contact David Moore