Nerves Limit Pound Euro (GBP/EUR) Exchange Rate Gains as Brexit Deal Heads to Parliament
As questions remain over Boris Johnson’s ability to pass the new Brexit deal through parliament the Pound Sterling to Euro (GBP/EUR) exchange rate struggled to gain any fresh ground this morning.
While the risk of a no-deal scenario diminished after officials appeared to resolve the Irish border issue this failed to keep Pound Sterling (GBP) on an uptrend for long.
Given Johnson’s lack of a parliamentary majority and the opposition that his allies in the Democrat Unionist Party (DUP) have already voiced the passage of the deal appears far from certain.
Unless the parliamentary maths can deliver approval of the proposed Brexit deal GBP exchange rates look set to come under renewed pressure in the days ahead.
Narrowed Current Account Surplus Adds to Eurozone Growth Anxiety
Although the Eurozone current account surplus saw a smaller narrowing on the month than forecast this failed to shore up the Euro (EUR).
As the weaker current account figure still offers evidence of deteriorating economic strength within the currency union EUR exchange rates were largely left to trend lower in the wake of the data.
Even though trade tensions between the US and China showed signs of easing this was overshadowed by the introduction of fresh 25% tariffs on a number of EU products.
With the Eurozone economy still looking vulnerable to a sustained deterioration in trade conditions investors saw little incentive to favour the single currency at this stage.
Signs of Stronger German Inflation to Offer Euro Support
EUR exchange rates could find a fresh boost on Monday morning, however, as forecasts point towards an improvement in the latest German producer price index figures.
With producer prices expected to pick up 0.6% on the year in September this could encourage bets that the Germany inflation outlook is strengthening.
While the European Central Bank (ECB) already appears biased towards further dovishness a stronger showing here could still give policymakers cause for pause.
If inflationary pressure within the Eurozone’s powerhouse economy can pick up in the final few months of the year this may reduce the risk of additional ECB monetary loosening, to the benefit of the Euro.
GBP/EUR Exchange Rate Set for Volatility on Parliament’s Brexit Deal Vote
The outcome of Saturday’s parliamentary session could drive the GBP/EUR exchange rate into a sharp downtrend if MPs choose to reject the proposed Brexit deal.
As long as uncertainty over the UK’s future relationship with the EU persists this is likely to limit the potential for GBP/EUR exchange rate gains.
Worries over the underlying health of the UK economy may also pick up if Tuesday’s CBI industrial trends orders and business optimism index show another move lower.
Further signs of anxiety among UK businesses would raise the risk of the economy continuing to underperform in the months ahead, leaving GBP exchange rates exposed to additional selling pressure.