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GBP EUR Exchange Rate Emerges from Lows Despite Persistent Political Jitters

  • GBP EUR Exchange Rate Nears 1.12 – Climbs from Friday’s multi-week-low
  • Catalonia Uncertainty Hits Euro – Could destabilise Spanish economy
  • GBP Forecast: UK Trade Data Ahead – Tory Party developments also in focus
  • EUR Forecast: Will Catalonia Declare Independence? – More Euro weakness could be ahead

Updated 16:41 BST 09/10/2017:

The Pound to Euro exchange rate slipped back from its daily highs towards the end of Monday’s European session, as investors digested the weekend’s news.

Sterling had recovered from its lows due to speculation that UK Prime Minister Theresa May could be planning to reshuffle her government cabinet in order to reassert her strength as Conservative leader.

The GBP EUR exchange rate briefly capitalised on Euro weakness and reached above the level of 1.12. However, the pair trended closer to 1.1185 towards the end of the day.

Markets are still anxious that UK political stability could worsen, so political news will be the focus of GBP EUR traders in the coming days.

[Published 12:17 BST 09/10/2017]

Despite lasting concerns about the current stability of Britain’s leadership, the GBP EUR exchange rate recovered slightly on Monday. The possibility that the Catalonian government could attempt to declare independence from Spain in the coming days is weighing on the Euro.

Political uncertainties in the Eurozone have limited GBP EUR losses, but the pair still tumbled from 1.1338 to 1.1137 last week. GBP EUR recovered nearer to the key level of 1.12 on Monday, but Sterling lacked the drive for a stronger recovery.

Pound (GBP) Recovery Limited as Political Uncertainties Persist

A bundle of UK political uncertainties have weighed heavily on the Pound throughout October so far, since the Conservative Party Conference saw UK Prime Minister Theresa May caught up in a few embarrassing pitfalls.

Some critics called May’s speech at the conference a disaster, and mutterings quickly emerged that many Conservative MPs believed May wouldn’t be holding onto Britain’s leadership role for much longer.

May had also been criticised for her soft stance on UK Foreign Secretary Boris Johnson’s recent behaviour, which has been called defiant. Speculation has risen that Johnson is aiming for the leadership position himself.

Surrounded by calls to sack or demote Johnson, May pledged to maintain her leadership position and fight off any potential challenges.

On top of domestic leadership concerns, markets are also anxious about the ongoing Brexit process. Brexit negotiations seemingly remain at a standstill, with analysts and UK officials increasingly worried that no new UK-EU trade deal will have been negotiated by the time the process ends.

On Monday, the Conservative Party firmed its stance on Brexit negotiations by suspending two lawmakers who voted for London to do more in meeting EU demands. The lawmakers had defied a party whip.

According to a statement from the party, Julie Girling and Richard Ashworth were seen as blocking Brexit talks from moving forward, but Girling argued that her vote was in the interests of her constituents over party discipline.

Regardless though, the Pound recovered as investors bought it from its cheap levels and the Euro was weighed down by the Eurozone’s own political uncertainties.

Euro (EUR) Pressured by Catalonia Independence Fears

Catalonia’s debate on independence from Spain continues to hit headlines this week, with markets becoming increasingly anxious that the situation could escalate and impact the Eurozone’s economy.

Catalonian President, Carles Puigdemont, is speculated to declare the region’s independence from Spain within the coming days.

While Spain’s government has called the independence vote unconstitutional, concerns are rising that instability in Catalonia could cause economic issues in Spain.

As Catalonia makes up around 20% of Spain’s Gross Domestic Product (GDP), markets are anxious about how these developments could affect the Eurozone’s fourth biggest economy and the bloc itself.

However, despite political uncertainties limiting Euro strength, investors are overall optimistic on the Eurozone outlook.

According to a survey from Sentix, the Eurozone index climbed from 28.2 to 29.7 for the October print. Current conditions in the Eurozone were positive too

Sentix’s statement said;

‘The first economic test after the German parliamentary elections can be seen as successful, The global economic engine continues to gain strength.

If nothing goes wrong in the expected formation of a government, the coming months are likely to see strong economic growth,

However, there is significant potential for disappointment if there is a power vacuum in Berlin.’

The report indicated that analysts are still concerned about political uncertainty in Germany following last month’s 2017 German federal election.

GBP EUR Exchange Rate Forecast: Investors Await ECB Comments

The Pound to Euro exchange rate is likely to react to political developments in the coming days, amid a lack of highly notable ecostats from Britain or the Eurozone.

Tuesday will see the publication of UK trade balance data, industrial production and manufacturing stats, as well as German trade balance and Greek inflation data.

Any potential shifts in Britain’s political situation, or developments from the Catalonian government, are more likely to cause GBP EUR exchange rate movement.

If UK Prime Minister Theresa May’s grip on leadership comes into question again, Sterling’s recovery attempts could fade.

On the other hand, if the Catalonian government attempts to declare independence, Eurozone political uncertainty is likely to weigh on the Euro too.

It’s possible that there will be no notable developments though. In this scenario, markets will be looking ahead to Thursday’s speeches from European Central Bank (ECB) officials, including ECB President Mario Draghi.

Markets remain confident that the ECB is preparing to wind back its quantitative easing (QE) scheme, so any shifts in the rhetoric of banking officials could impact Euro exchange rates.

GBP EUR Interbank Rate

At the time of writing this article, the GBP EUR exchange rate trended in the region of 1.1200. The Euro to Pound exchange rate traded at around 0.8925.