GBP/EUR Exchange Rate Supported by Easing No-Deal Brexit Fears
Updated: The Pound to Euro (GBP/EUR) exchange rate maintained its upward trajectory this afternoon, with the pairing trading as high as €1.1085 amid renewed Brexit optimism.
It remains to be seen whether this optimism with survive this evening’s parliamentary proceedings however as MPs debate on whether to back a bill to delay Brexit and a subsequent vote on if a snap election should be called.
MPs have started debating a bill to block a no-deal #Brexit
The first vote on the bill is expected around 1700 BST
— BBC Politics (@BBCPolitics) September 4, 2019
Also influencing the GBP/EUR exchange rate this afternoon was Mark Carney’s appearance in front of Parliament’s Treasury Committee, with the Governor of the Bank of England (BoE) stating its worst-case Brexit scenario is now ‘less severe’ than it was in 2018.
GBP/EUR Exchange Rate Gains Trimmed by UK PMI Data
The rally in the Pound to Euro (GBP/EUR) exchange rate has begun to fade this morning, in response to the UK’s weaker-than-expected services PMI.
At the time of writing the GBP/EUR exchange rate is trading at around €1.045, up nearly 0.3% on the day, but down from a high of €1.1070 stuck before the PMI release.
Pound (GBP) Rally Stalls as UK at Risk of Slipping into a Recession
The renewed buying interest in the Pound (GBP) began to fade again this morning, leaving the currency rangebound against the Euro (EUR) in the wake of the UK’s services PMI.
According to data published by IHS Markit, growth in the UK’s dominant service sector was close to stagnation last month, resulting in overall growth in the private sector contracting following a poor performance by both the manufacturing and construction sectors.
🇬🇧 Growth across the UK service sector slowed in August, as the UK Services Business Activity Index dropped to 50.6 (51.4 – July). Expectations dipped to lowest since July 2016. All sector data signalled a fractional fall in private sector output. More: https://t.co/ImF19cjDrd pic.twitter.com/UY2m1ou8zK
— IHS Markit PMI™ (@IHSMarkitPMI) September 4, 2019
Analysts suggest the data is complicit with UK economic growth contracting by 0.1% in the third quarter, resulting in the UK slipping into a technical recession for the first time in a decade.
Chris Williamson, Chief Business Economist at IHS Markit, warns:
‘After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into recession. The PMI surveys are so far indicating a 0.1% contraction of GDP in the third quarter.’
Euro (EUR) Subdued On Dovish ECB Chatter
Meanwhile, the Euro (EUR) is trading narrowly this morning in response to comments from incoming European Central Bank’s (ECB) President Christine Lagarde.
Lagarde, who is set to take over from Mario Draghi when he steps down in November has made it clear that she plans to follow in her predecessors footsteps on monetary policy.
Speaking in front of the Committee on Economic and Monetary Affairs (ECON), Lagarde suggested that a ‘highly accommodative policy is warranted for a prolonged period’, echoing Draghi’s dovish outlook on monetary easing.
GBP/EUR Exchange Rate Forecast: UK Politics to Inject Fresh Volatility in Sterling?
Looking ahead, UK politics will likely continue to act as the main catalyst of movement in the Pound to Euro (GBP/EUR) exchange rate.
After seizing control of agenda in the House of Commons yesterday, MPs have tabled a bill compelling Boris Johnson to request another Brexit delay, a vote on which will take place later this evening.
Also on the docket today will be a motion tabled by Johnson to call a snap election.
This has the potential to stoke further volatility in GBP exchange rates, amidst conflicting reports on whether opposition MPs may support the motion.
I am told opposition parties will amend the government’s motion this pm to dissolve parliament, saying they will allow election if government accepts their new law that would seek to delay Brexit. What will @BorisJohnson do?
— Robert Peston (@Peston) September 4, 2019
Meanwhile for EUR investors the focus in the latter half of the week may be on Germany’s latest industrial data.
Economists forecast data will show that both factory orders and industrial production contracted in July, likely stoking expectations that Germany will slip into a recession in the second quarter.