Brexit Optimism Fails to Keep Pound Sterling Euro (GBP/EUR) Exchange Rate on Uptrend
The Pound Sterling to Euro (GBP/EUR) exchange rate failed to hold onto an uptrend today as the impact of the latest parliamentary vote on Brexit faded.
As MPs rejected the prospect of a no-deal Brexit this encouraged a greater sense of investor optimism, boosting Pound Sterling (GBP) to multi-month highs against its rivals.
However, the vote increased the degree of political uncertainty hanging over the future of the UK, with the ultimate outcome of the Brexit process still far from clear.
With Theresa May looking set to put her Brexit deal before MPs for a third time in the days ahead the initial bout of Pound confidence soon started to fade.
A weaker-than-expected RICS house price index reading also put pressure on GBP exchange rates, with signs pointing towards a continued slowdown in the UK housing market.
Downward Revision to German Inflation Rate Weighs on Euro (EUR)
In a disappointing move, February’s German consumer price index was revised down from 1.6% to 1.5% on the year, leaving the Euro (EUR) on a weaker footing.
Even though inflation still accelerated on the year this was not enough to encourage demand for the single currency this morning.
As the headline inflation rate remains some way shy of the European Central Bank’s (ECB) 2% target the case for monetary tightening still looks limited.
With inflationary pressure struggling to build as desired within the Eurozone’s powerhouse economy policymakers are likely to maintain a relatively dovish outlook in the near future.
This downgrade raises the risk of Friday’s Eurozone consumer price index data also suffering a downward revision, further limiting the appeal of the Euro.
Without signs of price pressures accelerating EUR exchange rates could struggle to find any significant upside momentum in the near term.
GBP/EUR Exchange Rate at Risk of Further Brexit-Based Volatility
Brexit developments look set to drive further volatility for the GBP/EUR exchange rate ahead of the weekend, meanwhile.
If MPs vote in favour of extending the Brexit deadline this could encourage a fresh bout of Pound Sterling optimism, with the chances of a disorderly exit diminishing.
However, as uncertainty has already negatively impacted the health of the UK economy the prospect of an extension may weigh heavily on GBP exchange rates.
Unless investors see a greater sense of clarity over the UK’s future relationship with the EU this may leave the Pound exposed to selling pressure once again.
Political jitters could also weigh on the GBP/EUR exchange rate if doubts over Theresa May’s position as prime minister mount.
A fresh rejection of May’s deal next week may leave the Pound on a fresh downtrend, with parliamentary paralysis unlikely to offer markets any particular cause for confidence.