Brexit uncertainty returned with a vengeance last week, casting GBP/EUR back down from €1.15 to €1.13 and erasing much of the previous week’s gains.
Sterling Sentiment Sours on Renewed Brexit Uncertainty
After tearing higher at the start of 2019, the Pound to Euro exchange rate ran out of steam last week, with Sterling forced to retreat in the face of renewed fears of a no-deal Brexit.
These new concerns were centred around a parliamentary debate on Theresa May’s Brexit ‘Plan B’ at the start of the week, as MP’s narrowly rejected an amendment that would help the UK avoid inadvertently crashing out of the EU without a deal.
Adding further pressure on the Pound at the tail end of the week was the publication of the UK’s latest manufacturing PMI as UK factory growth slowed to a three-month low despite Brexit stockpiling.
Meanwhile the Euro faced its own setback last week as the latest Eurozone GDP readings revealed that Italy fell into a technical recession at the end of 2018, with the bloc’s third largest economy also barely expanding over the year.
However the single currency was still able to close the week on a high, following a surprise pick-up in Eurozone core inflation in January.
Heightened Brexit Uncertainty to be Reflected in BoE Policy Meeting?
Barring any notable developments in Brexit, the main catalyst of movement in the GBP/EUR exchange rate this week looks set to be the Bank of England’s first policy meeting of 2019.
While no policy changes are expected from the BoE, investors are likely to pay close attention to the bank’s forward guidance as they look for any signs that rising Brexit concerns and global economic uncertainty may lead the BoE to leave rates on hold until 2020, as some economists suspect.
In the meantime the UK will also release its latest services PMI, with another subdued reading in January likely to drag on Sterling through the first half of the week.
Meanwhile is set to be a quieter session in terms of Eurozone data this week, with the only release of note set to be the bloc’s latest retail sales figures, with the Euro potentially weakening if sales growth slowed in December as forecast.