The spectre of Brexit returned with a vengeance last week, driving GBP/EUR as low as €1.10 after opening the week closer to €1.12.
Brexit Jitters Drag on GBP as May Confirms Brexit Vote
The Pound to Euro exchange rate weakened last week as Parliament returned following the Christmas recess and re-opened the can of worms that is Brexit. Theresa May confirmed a parliamentary vote on her Brexit deal would take place on 15 January.
However it wasn’t all smooth sailing for the Euro last week, with the single currency struggling at the start of the week as some lacklustre German industrial data prompted speculation that Europe’s largest economy may have fallen into a technical recession at the end of 2018.
Also setting the Euro back later in the week was the release of minutes from the European Central Bank’s (ECB) December policy meeting, which saw a number of policymakers urge greater caution from the bank as economic uncertainty builds.
Brexit Vote to Drive Major Volatility in the Pound?
This week’s session looks set to be dominated by the House of Commons vote on Tuesday, in which UK MPs will finally deliver their verdict on Theresa May’s EU withdrawal deal.
The parliamentary vote is widely expected to result in the deal being rejected, with some observers forecasting that the government may lose the vote by a margin of 200.
However while the outcome of the vote appears to be all but confirmed, its short-term impact on the Pound is less clear.
The prevailing theory would suggest that Sterling will plummet if the vote is rejected as it leads to greater uncertainty and (potentially) a no-deal Brexit.
Conversely, some analysts speculate that a defeat on Tuesday will force the government to delay Brexit beyond 29 March or prevent the UK from leaving the EU at all, an outcome that is likely to be favoured by GBP investors.
Meanwhile, EUR investors are likely to focus on the release of Germany’s 2018 GDP report at the start of the week, with any confirmation that the country did enter a recession in the fourth quarter potentially dragging on the Euro.
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