- EUR GBP Unstable after Italian Referendum – Euro mounts recovery after initial drop.
- Supreme Court Appeal Begins– Pound may slide if UK government wins appeal.
- Euro Bolstered by Data – Eurozone Retail Sales impress.
The EUR GBP exchange rate briefly fell to its lowest levels since early July today as markets reacted to the fallout of the Italian Referendum.
Euro Pound (EUR GBP) Unstable after Italian Referendum
The Euro (EUR) initially fell this morning following Italian Prime Minister Matteo Renzi’s announcement of his resignation after Italy overwhelmingly voted to reject his constitutional reforms in Sunday’s referendum, although many saw it more of a vote against the establishment, as Maria Paola Toschi of JP Morgan Asset Management explains;
‘The referendum was therefore seen as a political test for the government—and the No victory was considered a vote of no confidence, putting at risk the survival of the current coalition.’
The Euro quickly bounced back however as markets calmed down after their kneejerk reaction as the result had already been largely priced in, while finance minister Pier Carlo Padoan is tipped to become the interim PM and serve the rest of the term until the 2018 general election, helping to allay fears of political uncertainty.
However if the opposition manages to push an early election through next year there are fears that the Five Star Movement could form a new government, with the populist party wanting to hold a referendum on leaving the Euro and potentially causing irreparable damage to the single currency.
Pound’s Gains Muted ahead of Supreme Court Appeal
The Pound’s (GBP) advance was also slowed this morning as the UK government makes a Supreme Court appeal against a High Court judgement back in October that ruled that Article 50 could not be triggered with the consent of parliament.
Investors are concerned that if the government wins its appeal it increases the chances of a ‘hard Brexit’ as it would not have to offer concessions in parliament.
Eurozone Retail Sales Provide Boost for Euro (EUR) Exchange Rates
The Euro’s (EUR) recovery this morning was also helped along by a better than expected Eurozone Retail Sales report.
Consumer spending surged from a yearly low of 1.0% to reach 2.4% in October, its highest level since February and beating expectations that sales would only rise to 1.7%.
This, added to a modest rise from 55.0 to 55.1 in Germany’s Services PMI report from November earlier in the morning, aided the single currency’s recovery from its post referendum woes.
EUR GBP Exchange Rate Forecast: Eurozone GDP Data Tomorrow
The EUR GBP exchange rate may rise tomorrow if there is a surprise uptick in the latest Eurozone GDP report, with economists currently predicting that the Eurozone’s GDP will remain unchanged at 1.6% in the third quarter.
An unexpected rise would help to strengthen the Euro ahead of the European Central Bank’s (ECB) rate decision on Thursday, when the Bank is expected to announce an extension to its economic stimulus, extending its quantitative easing programme past March 2017.
Meanwhile, Pound (GBP) exchange rates may struggle to advance in the first half of the week as a lull in data releases until Wednesday will provide sterling with little momentum against speculation of the government’s Supreme Court appeal.
Current Interbank Exchange Rates
At the time of writing the EUR/GBP exchange rate was trending around 0.83 and the GBP/EUR exchange rate was trending around 1.19.