Euro Pound (EUR/GBP) Exchange Rate Slumps as MPs Rule Out New PM Suspending Parliament
UPDATE: The Euro Pound Sterling (EUR/GBP) exchange rate slumped by around -0.5% on Thursday afternoon.
The pairing is currently trading at an inter-bank rate of £0.8987.
MPs voted to stop the next Prime Minister from shutting down Parliament in order to force through a no-deal Brexit.
MPs voted 315 to 274 votes, approving an amendment that blocks suspension between 9 October and 18 December.
While Conservative leadership contender Jeremy Hunt ruled out this move, front-runner Boris Johnson has not ruled out suspending Parliament.
Reports revealed that four Cabinet Minister abstained, and 17 Conservative MPs rebelled.
This includes Minister Margot James who has now resigned.
However, there was not a huge market reaction to the vote, and Sterling remained buoyed against the single currency thanks to a jump in retail sales.
Euro Pound (EUR/GBP) Exchange Rate Slides as UK Retail Sales Unexpectedly Rebound in June
The Euro Pound Sterling (EUR/GBP) exchange rate slumped on Thursday morning.
The pairing is currently trading at an inter-bank rate of £0.9005.
On Thursday morning, the UK economy was provided with a much-needed boost in the form of June’s retail sales.
According to data from the Office for National Statistics (ONS) retail sales rebounded unexpectedly in June.
Compared to June 2018, sales rose by a higher-than-forecast 3.8% while monthly sales jumped by 1%.
There is concern from many economists that the British economy is in danger of contracting in the second quarter.
However, Sterling sentiment rose as the unexpected strong data likely helped to reduce the risk of the economy shrinking.
EUR/GBP Falls despite Warnings No-Deal Brexit Could Cause a Recession
Over the course of this week, the Euro Pound (EUR/GBP) exchange rate hit a six month high.
Meanwhile, on Thursday a report from the Office for Budget Responsibility (OBR) revealed that the UK could face a recession.
However, this could do little to stop Sterling rising against the single currency.
The report revealed the economy will plunge into a recession and a £30 billion black hole will be left in the public finances.
The OBR also added that recent data may suggest that the UK is already entering a ‘full blown recession’.
In the report, the fiscal watchdog warns:
‘Surveys were particularly weak in June, suggesting that the pace of growth is likely to remain weak. This raises the risk that the economy may be entering a full-blown recession.
‘The fiscal risks posed by recessions depend on their depth and persistence, the sectors most deeply affected, and the pace at which the economy subsequently recovers.’
Euro (EUR) Slumps as Disappointing Inflation Could Prompt ECB Rate Cut
On Wednesday, data from Eurostat showed that the Eurozone’s Consumer Price Index (CPI) rose to 1.3% in the 12 months to June.
However, the single currency remained under pressure as this still fell short of the European Central Bank’s (ECB) target of close to but below 2%.
While the bank pushed back the possibility of an interest rate increase during its last meeting, it is likely weak inflation has increased market expectations of an ECB rate cut.
Commenting on June’s weak inflation, S&P Global Ratings Economist, Marion Amiot noted that weak inflation came despite increased wage growth.
She also noted that ‘the global slowdown’ could ‘exacerbate the persistent weak inflationary pressures […] which could cause inflation expectations and the ECB’s target to diverge further.’
Amiot also stated that growth in the bloc has been hit by ongoing trade tensions and a slowdown in the Eurozone’s largest economy.
‘Against this backdrop, we think the ECB has little choice but to loosen monetary policy further this year.’
Yesterday: Sterling (GBP) Slides as London House Prices Fall at Fastest Pace in a Decade
Meanwhile, data from the Office of National Statistics (ONS) revealed inflation remained steady at 2% in June, unchanged from May.
Workers benefitted from real wage growth as average earnings jumped to a higher-than-forecast 3.6% during the Q2 2019.
However, separate data revealed that in May house prices in London slumped at the fastest pace in around a decade.
House prices plummeted by 4.4% compared to May 2018 which dampened sentiment in the Pound.
Pound Euro Outlook: Will Disappointing German Inflation Weigh on EUR?
Looking ahead to Friday, the Euro (EUR) could slide against the Pound (GBP) following the release of Germany’s Producer Price Index (PPI).
If inflation slides further than expected in June, it could weigh on the single currency.
Meanwhile, Sterling could remain under pressure if the chances of a no-deal Brexit continue to increase.
If there are further signs both Conservative leadership hopefuls are likely to trigger a no-deal, the Euro Pound (EUR/GBP) exchange rate could increase.