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EUR GBP Rebounds; UK Q4 GDP Beats Forecasts but Prospect of Slower Consumer Spending Remains

The Eurozone may have released numerous data reports this morning, but the fate of today’s EUR GBP exchange rate rested firmly in the hands of the Supreme Court.

The judges have just announced their much-awaited verdict, ruling by eight to three that the UK government cannot trigger Article 50 without the input of Parliament.

So what was the judgement about and why is it important?

Closing Update, 26th Jan; EUR GBP continues lower today. Investors have been unnerved by comments from Ted Malloch, tipped by the media to be President Donald Trump’s pick for US-EU ambassador. Malloch has commented that he would position himself short on the Euro, because the common currency could ‘collapse’ within the next year-and-a-half.

Afternoon Update, 26th Jan; Investors are reassessing the latest UK GDP figures. If other G7 nations meet, or fall short, of their targets for 2016, then the UK will have had the fastest growing economy amongst the group last year. This realisation has leant some perspective to fears about what 2017 may bring for the UK.

Midday Update, 26th Jan; Despite the strong UK GDP figures, EUR GBP has now been able to notch up strong advances. Investors are worried that the services sector continues to be the only driver of economic growth in Britain. With recent signs consumer spending is slowing down and prices are going to keep rising, the outlook for 2017 GDP remains dovish.

Morning Update, 26th Jan; EUR GBP is slumping today after the release of strong Q4 GDP figures for the UK. Growth had been expected to weaken ten basis points on the quarter and the year, but instead held steady at 0.6% and 2.2% respectively.

Closing Update, 25th Jan; The EUR GBP exchange rate has now fallen to a three-week low. Issues with the Greek bailout are dragging the common currency lower; Greek PM Alexis Tsipras has said his government will not legislate even ‘one Euro’ of additional austerity measures.

Afternoon Update, 25th Jan; Theresa May has surprised MPs today by announcing that the government will produce a white paper on its plans for Brexit. The notion of a white paper is one that was expected to feature heavily once the Article 50 bill is put before Parliament, with many MPs likely to have backed an amendment forcing the government to produce one.

Morning Update, 25th Jan; German business confidence has slipped to a five-month low, according to the latest Ifo survey. While firms are reportedly happy about the current economic conditions, their outlook for the coming six months is less positive. GBP EUR has been able to notch up gains, helped higher by the fact that yesterday’s Supreme Court judgement has removed another source of uncertainty from the Brexit process.

Historic Case sees Supreme Court Decide on the Legality of Triggering the Brexit Process

During a four-day court case in December, the Government appealed a November ruling by the High Court that Parliament must vote to trigger Article 50. The historic legal battle saw all eleven Justices of the Supreme Court hear the case for the first time, in which the government argued that it could use ‘Royal Prerogative’ to invoke the exit clause without the prior approval of lawmakers. Arguing against the use of the prerogative, lawyers representing the High Court challenger Gina Miller claimed that there was no historical precedent for using the power to remove domestic rights from UK nationals.

When the challenge was initially brought before the High Court, many had hoped that a victory would allow MPs to block the Brexit process entirely, keeping the UK in the EU against the will of the cabinet and majority of voters who supported leaving.

However, while the majority of MPs and lords in Parliament and the Upper House supported Remain, a number have publicly stated they have no intention of attempting to block Brexit.

Why has the Ruling Boosted EUR GBP?

Supreme court EERN

Investors have technically gotten what they wanted, but the Pound has weakened against the Euro.

Without the influence of Parliament, Theresa May would be free to pursue her own agenda, which focusses on leaving the single market in order to focus more on controlling immigration. Investors, who have an interest in the status quo as it minimises currency risk, think this will be incredibly disruptive for the UK economy.

Now that a bill for the triggering of Article 50 has to be put before Parliament, MPs have the opportunity to amend it before they vote it through. This means there is the possibility that MPs will amend the Article 50 bill to force Theresa May to focus on single market access, or other aspects of EU membership she intends to abandon, during the negotiations.

However, another part of the case involved the role of the devolved governments – Scotland, Wales and Northern Ireland – in the Brexit process. The justices have ruled that the devolved governments do not have a legal right to an input in the process, stating;

On the devolution issues, the court unanimously concludes that neither section 1 nor section 75 of the NIA is of assistance in this case, and that the Sewel Convention does not give rise to a legally enforceable obligation.

This has increased the likelihood that Scotland will hold a second independence referendum; Scottish officials have been very vocal about the fact the country will not accept Brexit if the final deal is damaging to the country. This is allowing the Euro to strengthen.

Are there other Factors Weighing on EUR GBP?

While the Supreme Court judgement is the focus for investors today, traders will also be paying attention to the latest raft of Eurozone PMIs, released earlier this morning. The mixed bag of results has seen some reports bettering forecasts, while others have disappointed.

In a return to a recent trend, it seems that weakness in the German economy has dragged the Eurozone measures lower, despite positive figures from France. German services and composite indices both weakened against forecasts of an uptick, causing Eurozone prints to do likewise.

Additionally, UK borrowing data was released at the same time as the Supreme Court judgement. The data shows that Chancellor Philip Hammond could be on track to hit the revised borrowing targets for the current fiscal year, with borrowing in December clocking in at -£6.4 billion against predictions of -£7.2 billion. Additionally, November’s deficit was revised lower to -£10.8 billion from £12.2 billion.

What’s Next for EUR GBP?

Euro coins and notes

All the relevant data has been released today, so the economic calendar won’t hold any more surprises.

Speeches by the European Central Bank’s (ECB) Peter Praet and Sabine Lautenschläger could move the Euro, assuming the policymakers refer to monetary policy. If they are seen to hold Mario Draghi’s dovish view of inflation, Euro sentiment will weaken. If they seem more positive than the central bank chief, however, the common currency could rise on investor hopes the ECB will move away from monetary easing.

Meanwhile, volatility is likely to continue as investors decide whether or not today’s ruling has been positive overall, what with the threat of a second Scottish independence referendum on the horizon.

Interbank EUR GBP Exchange Rates

At the time of writing, EUR GBP was trading around 0.85, while GBP EUR was trading around 1.16.