Good morning. GBPEUR rates have slipped into the €1.13’s this week, giving up the gains we saw last week. GBPEUR rose into the €1.14’s after the European Central Bank (ECB) cut growth forecasts. this had weakened the Euro and pulled GBPEUR lower. The gains were short lived however, as UK politics move back in to focus.
Commons vote could move GBPEUR today
There are 2 key events in the next few days that I think could affect the Pound/Euro rate. Firstly, today we have another vote in the House of Commons. Last week the government won a vote against amendments the House of Lords were proposing. The Lords have now re-worded their amendment. What they want is Parliament to have a say in negotiations in the event that no deal is agreed. The government disagree. It will be a close vote. If the government lose today, then effectively it means that Parliament will have the power to intervene in negotiations that, in my view, would weaken May’s hand in negotiations. if they lose the vote today, I would expect the Pound to fall in value. If they win, then it should remove some political uncertainty and shore up the Pound.
Bank of England to meet on Thursday
After today’s debate and vote in the commons, focus will turn to tomorrow’s Bank of England meeting. We do not expect any change to interest rates. What will be important for GBPEUR however is the tone of the minutes to the meeting, and anything Mark Carney has to say. If the tone is hawkish and hints at an interest rate rise later in the year, then GBPEUR is likely to rise. If any more than 2 of the members vote for a hike, then again this is likely to push GBPEUR back above €1.14. This is because the prospect of higher interest rates tends to increase demand for a currency and strengthen it. If however they are dovish in their comments, and markets think that a rate hike is some way off, then the Pound is likely to weaken.
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