The GBP/EUR exchange rate fluctuated this week as UK political developments rippled through currency markets.
Sterling Rocked by UK ‘Constitutional Crisis’
The Pound initially strengthened against the Euro this week, with the pairing jumping on Tuesday in response to news that UK opposition parties had agreed a strategy to prevent a no-deal Brexit.
However these gains proved to be short lived, with Sterling plummeting in the mid-week after the Queen accepted the government’s request to suspend parliament early in September.
The proroguing of parliament was widely criticised by opposition MPs as a move to side line parliament from the Brexit process, with GBP left on the defensive through the remainder of the session amid fears this would increase the chances of a no-deal Brexit.
EUR investors were also preoccupied by politics for much of this week as Italy’s Five Star Movement and Democratic Party scrambled to form a new coalition and avert fresh elections.
The provided some support to the Euro after the two parties were tasked with forming a new government by President Sergio Matarella.
However, simultaneously limiting the upside in the single currency was the latest Eurozone CPI print as another weak inflation reading placed more pressure on the European Central Bank (ECB) to ease monetary policy.
Brexit Headlines to Overshadow UK PMI figures?
Looking ahead to next week, we expect the spotlight will remain firmly on UK politics as parliament returns from summer recess on Tuesday for what will be a very truncated session.
MPs opposed to a no-deal Brexit will have just a week to pass measures to block a no-deal Brexit, potentially forcing them to pursue a vote of no-confidence in Boris Johnson.
This will likely overshadow next week’s PMI figures, which offer GBP investors more insight into the state of the UK economy in August.
For EUR investors the focus will likely be on the latest German industrial data.
This may weigh on the Euro next week as another gloomy industrial production reading and a likely contraction in factory orders in July may stoke fears that the Eurozone’s largest economy may slip into a recession this year.