Pound/Euro rates remain range-bound ahead of next week’s key Brexit vote. Yesterday saw the pair fall to the low €1.10’s which was due to markets pricing in the possibility of a General Election. In the wake of the government losing 2 key commons votes, the chances of a General Election have increased, although it’s still unlikely. Regardless of your personal view, markets do not like the prospect of a Labour government that would embark on policies of high borrowing and spending which would weaken the Pound and weigh heavily on Sterling.
Slight recovery due to UK GDP numbers
This morning rates have recovered slightly on the chances of a new referendum. It’s a surprise that the Pound has recovered, as this morning’s economic data releases were quite poor. Trade Balance numbers were worse than expected. Industrial and Manufacturing figures came in way below forecast too. GDP numbers however, were slightly better at +0.2% which was more than markets had been expecting, which could be why the Pound didn’t fall. The other reason is that some think that a new referendum could be on the cards, and that would be Sterling positive. My view is that it would only increase division. The polls suggest nothing much has changed since 2016 and it would be about 50/50. If remain won by a small margin, then there would be calls for a 3rd referendum. Where would it end?
Pound/Euro likely to remain stable until more is known
As things stand I expect GBP/EUR to remain at €1.1050/€1.11 until we get further information on what is likely to happen next week. Markets are just sitting back to see how it all unfolds. Most downside risks are already priced in to the Pound.
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