The Pound/Euro rate is at a 2 month high today, following the government succeeding in winning the vote of no confidence last night, as was widely expected to happen. Sterling has been getting stronger and stronger over the last week, on signs that the UK is unlikely to crash out of the EU without some sort of deal. In the last week alone, GBP/EUR has risen from €1.10 to €1.13, which is the highest we’ve seen in 2 months.
It’s strange, as usually markets hate uncertainty. This week the withdrawal agreement was rejected, with the UK and EU both saying no concessions will be made, and with no clear idea what will happen next. Despite this, the Pound has gone up. Our view is that despite the current political situation, markets do not expect no deal to happen despite that being the default position at the moment. That’s why Sterling has gained. A softer Brexit or delay in the process is now perceived as the most likely outcome.
In the last half an hour the UK has said it won’t extend article 50 and that we would be leaving the EU on March 29th. The Pound went up as markets have completely ignored this comments and simply don’t believe them. Everyone thinks that an extension to article 50 is now the only option. Personally I think that with a clear signal that the EU’s proposed withdrawal agreement will not be accepted, the EU now need to make some concessions with regards to the Irish backstop.
What next for Pound/Euro rates?
I think that given GBP/EUR has risen by 3 cents in a week, it’s likely this recent run of strength will run out of steam and the pair won’t rise much above €1.13. Unless we get an official announcement that Article 50 will be extended. Those that need to convert Pounds to Euros may wish to take advantage of the current levels while they are at a 2 month high. Purchasing €300,000.00 today is £7250.00 cheaper than this time last week, showing how much of a difference it cam make when converting a large sum.
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