Published On: Tue, Nov 14th, 2017

Pound V euro: GBP exchange rate nosedives as political pressure mounts


GBP/EUR is currently at around €1.123, down 0.67 per cent from this morning’s starting levels.

Sterling sentiment soured this morning as investors fret over the stability of the UK government following a report over the weekend that up to 40 rebel Conservative MPs are looking to mount a leadership challenge against the Prime Minister.

This puts them dangerously close to the numbers needed to formally trigger a contest against Mrs May, and the uncertainty such a situation would inspire is rattling markets.

The possible challenge comes after another cabinet reshuffle in the wake of Priti Patel’s resignation last Wednesday.

Adding even more pressure at the start of the week were remarks from the EU’s chief negotiator, Michel Barnier, in which he suggested that he was preparing for the possibility that Brexit negotiations may collapse following his issuing of a two-week deadline for the UK to clarify its position on a number of key points.

Observers suggest that the two sides are still clashing over the issue of the UK’s Brexit bill, with Mr Barnier stating that question over Britain’s financial obligations needed to be answered before trade talks would be allowed to begin.

Kyosuke Suzuki, director of forex at Societe Generale in Tokyo said: “There were some headlines released over the weekend that were negative for prime minister May, and the market began the week by digesting the reports and then sending the pound lower.”

However, slightly dampening the euro’s gains this morning were comments from the International Monetary Fund (IMF) which warned that Europe’s economy would also suffer if the EU and the UK fail to reach a deal.

IMF official Joerg Decressin told Reuters this morning: “Under such circumstances, our concern is that economic growth will suffer, especially in the UK, but also the euro area.”

Looking to the week ahead, the GBP/EUR exchange rate may see some movement tomorrow with the release of the UK’s latest CPI figures, with economists forecasting that UK inflation will have risen again in October.

However with the Bank of England (BoE) having only just voted to raise interest rates, investors may choose to largely ignore tomorrow’s figures unless inflation slips, suggesting that the BoE may have raised rates prematurely.

Meanwhile, the euro may be strengthened tomorrow morning by the release of Germany’s latest GDP estimate, with analysts forecasting that Europe’s latest economy will have continued to expand at a robust pace in the third quarter.


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