Pound/Euro falls to 4 month low

Sterling has tumbled aginast the Euro and US Dollar overnight, following Theresa May’s speech outlining her changes to the withdrawal agreement and outlining her Brexit plan. As rumours swirled that she would announce a vote on a second referendum, the Pound initially gained, briefly reaching €1.1450 agianst the Euro. Once she had delivered her speech however, the Pound fell back. As it became clear that many still oppose the withdrawal agreement, the Pound fell further. This morning, the Pound is at a 4 month low against the Euro and US Dollar, with rates at €1.1350 and $1.2668 respectively.

Could the Pound fall further?

We think it could. It could be that the bill isn’t even voted on, with some expecting the PM to quit next Monday. If she doesn’t she could be forced out by MPs opposed to her deal. There doesn’t seem to be any will in Parliament for a second referendum, and if she steps down it’s likely we’ll see Boris Johnson as PM. Markets fear he will pursue a harder form of exiting the European Union, and it’s this uncertainty that is pulling the Pound lower and lower.

I actually think that if Boris does get the keys to number 10, we’ll probably see him backtrack on leaving without a deal. It gets the support of Eurosceptic MP’s but does not have the support of the wider Conservative party, or indeed other MPs in parliament. It’s more likely that he will become more moderate and try to re-negotiate a better deal with the EU, one that MPs might be able to support.

But all of that is a long way off, and in the meantime, we have political uncertainty. Markets do not like uncertainty and while things are unclear, the Pound could well come under further pressure in the short term.

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