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Euro Pound (EUR GBP) Slides as MPs Prepare to Vote on Key Brexit Legislation

  • Euro Pound falls to 0.9094 – Pound Euro Climbs to 1.0993
  • EU Withdrawal Bill Vote Ahead – Volatility Forecast
  • Italian Industrial Production Disappoints – Euro Weakens

The Euro Pound exchange rate continued to slide this morning as markets prepare for the upcoming vote on the Brexit ‘EU withdrawal’ bill.

The bill itself (often referred to as the ‘repeal bill’) is incredibly significant, as it overturns the 1972 European Communities Act – the means by which we were able to gain entry into the European Economic Community.

The bill will convert existing EU laws into domestic ones in an attempt to make sure the Brexit transition is a smooth one, although whether it will pass is being questioned.

Various Labour MP’s have already decried it, claiming that it gives the government too much power to change laws without parliamentary inspection. These ‘delegated powers’ could hinder the bill in passing, although markets currently expect the assistance of the Democratic Unionist Party (DUP) to be enough to squeeze it through.

If the bill passes as intended then EUR GBP will likely tumble even further, as it would dispel many worries of a cliff-edge Brexit. If, however, the bill fails to pass then the Euro could catch a break, clawing back its recent losses against the Pound.

Industrial Production in Italy Proves Weak, EUR Declines

The Euro’s fall against the Pound today was exacerbated by some weak data prints from Eurozone member Italy.

Italy’s month-on-month industrial production printed at 0.1% in July, considerably lower than June’s 1.1% but better than the forecast of -0.4%.

Italy’s construction PMI for August also demonstrated a drop from 56.6 to 55.1, undershooting the 56.9 forecast.

Whilst these data prints might seem somewhat trivial, their fall only cemented today’s Sterling lead.

ECB Executive Coeure Claims Policy Will Remain Accommodative for Longer

Today’s speech from ECB Executive Board member Benoît Cœuré shed some light on fears that a strong Euro might negate the outlook for Euro Area inflation.

Cœuré stated:

‘With policy being effective in boosting growth, any disinflationary effect of a stronger currency arising from expectations of a tighter future monetary policy stance might be mitigated, or offset, by the ensuing improvement in the economic outlook’.

Essentially Cœuré suggests that policy will remain accommodative for longer in an attempt to negate the effects of any exchange rate appreciation in the mean-time.

This talk of ‘accommodative’ policy prompted investors to sell the Euro.

EUR GBP Forecast: UK Inflation on the Horizon

Whilst markets will be waiting with baited breath for the results of tonight’s EU repeal bill vote, attention will soon turn to tomorrow’s UK inflation figures, which are due at 09:30 UTC+1. Markets currently predict that the year-on-year core inflation rate for August will print at 2.5%, up from the previous period’s 2.4% figure.

The headline year-on-year UK inflation rate is also forecast to climb, jumping from 2.6% to 2.8%.

Economists worry that with wages not keeping pace, rising inflation will only put even more pressure on consumer’s wallets. However, ever rising inflation could also prompt the Bank of England (BoE) to consider a rate hike, especially as inflation remains well above the bank’s 2% target.

In this respect a jump in UK inflation could cause EUR GBP to flounder even further, especially if the EU Repeal bill successfully passes.