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Concerns about UK Government Stability cause Pound to Euro Losses

The Pound has slipped against the Euro today, falling heavily because of growing fears about political upheaval.

  • GBP EUR rate tumbles to 1.1212 – EUR GBP trades higher at 0.8917
  • Pound slides on fresh political fears – Is UK government in crisis?
  • Euro advances on German deadline news – Coalition talks could accelerate
  • Pound volatility likely on inflation stats – German GDP may bring greater Euro gains

In the Eurozone, traders have been more focused on promising news in German coalition talks.

Pound Battered by Falling Confidence in UK Government

A lack of faith in those in charge has led to the Pound taking a dive against the Euro.

The Conservative-DUP government finds itself in rough waters going into this week, following the loss of two high-ranking officials earlier in November.

This began when Defence Secretary Michael Fallon resigned because of sexual assault allegations.

The second blow was more recent, with International Development Secretary Priti Patel losing her post because of unauthorized meetings with the Israeli government.

The latest crisis to rock the government is news of an apparent mutiny among the Conservatives.

There are reports that up to 40 Conservative ministers could put their signatures to a vote of no confidence in Theresa May.

This number isn’t far off the figure required to trigger a vote in itself, which would naturally inspire major Pound losses.

In the event that May is actively challenged for the leadership, the Pound is likely to crash because it will mean further disruption to an already blighted administration.

Euro Trades Higher on Update in German Government Talks

The Euro has risen by 0.8% against the Pound today, thanks to news out of Germany.

The country held an election on September, which resulted in the CDU/CSU party retaining most of the vote.

This wasn’t enough to secure an outright majority, however, so coalition talks have been ongoing since the votes were announced.

The parties involved in talks have imposed a deadline of Thursday, in which to reach an agreement leading to a successful coalition.

While this puts pressure on the various parties, it also means that a breakthrough could be imminent.

Two Days of Volatility ahead for GBP EUR Exchange Rate

The Pound has been moved today by UK political concerns, but could be influenced more directly by economic news over the week.

This will start off with high-impact UK inflation rate figures, which will be released on Tuesday morning.

Forecasts are for a minor rise in year-on-year inflation in October, but a slight dip in the month-on-month reading.

The annual figure is the more important of the two, but both readings will be compared to Wednesday’s average earnings results.

The pace of wage growth has remained below the rate of inflation since early 2017, which has led to a wage squeeze and declining real incomes.

If the growth of average earnings remains far below the pace of inflation, this might trigger a Pound slide.

While the Bank of England (BoE) has recently raised interest rates to 0.50%, there is little indication that another hike is imminent unless economic conditions improve.

On the other side of the currency pairing, the Euro could rise sharply against the Pound if Tuesday morning shows higher German GDP.

Estimates are for the Q3 reading to show an annual rise from 2.1% to 2.2%, which might inspire a sharp Euro rise.

There are similarly optimistic forecasts for Italian GDP figures, which will be out later in the morning.

Rounding off a data-heavy day for the Eurozone, Tuesday is also expected to show higher annual Eurozone Q3 GDP growth.

Current Interbank GBP EUR Exchange Rates

At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1212 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.8917.