Pound Euro Exchange Rate Fails to Hold Gains after Parliamentary Brexit Debate Promise

October 12, 2016 - Written by Tim Boyer

STORY LINK Pound Euro Exchange Rate Fails to Hold Gains after Parliamentary Brexit Debate Promise

Parliamentary Brexit Debate Concession Prompted Pound Euro Exchange Rate Demand

A bout of relief shored up the Pound Sterling (GBP) in the early hours of Wednesday, with investors prompted to pile back into the weakened currency by a government U-turn.

Going back on earlier comments, Prime Minister Theresa May decided to allow the House of Commons a debate on the terms under which the government will negotiate Brexit prior to the triggering of Article 50.

However, while this seemed to reduce the odds of the government pushing ahead with its hard exit strategy it wasn’t long before the Pound Sterling to Euro (GBP/EUR) exchange rate began to shed its earlier gains.

In the absence of supportive domestic data the mood towards the Pound remained biased to the downside, with the prospect of a loss of single market access still concerning investors.

Euro (EUR) Struggled to Capitalise on Positive Eurozone Data as US Dollar Strengthened

The German Wholesale Price Index results for September offered some encouragement to the Euro (EUR), meanwhile, with prices rebounding strongly on the month from -0.7% to 0.4%.

This seems to bode well for the inflationary outlook of the Eurozone’s powerhouse economy, with the wholesale prices data being considered a gauge for the more pivotal Consumer Price Index.

Confidence in the robustness of the currency union was also boosted by stronger-than-expected Eurozone industrial production figures, adding downside pressure to the GBP/EUR exchange rate.

However, the gains of the single currency were somewhat muted, thanks to rising odds of an imminent Federal Reserve interest rate hike and the persistent bullishness of the US Dollar (USD).

UK Housing Data Predicted to Offer GBP/EUR Exchange Rate Boost

Another potential rallying point for the GBP/EUR exchange rate could come on the back of September’s RICS House Price Balance, providing that the domestic housing market shows signs of continued recovery.

Even so, a positive result may struggle to bolster the Pound substantially, given that the movement of the currency has been increasingly divorced from domestic data in recent days.

As researchers at BBH noted:

‘May is still insisting that limiting immigration is more important than access to the single market. May also appears to see a post-Brexit UK in which financial services are somewhat less important for the economy, while other strategic industries flourish. Global investors seem less convinced. The UK out of the EU may be worth 80% of less than what it was when it is part of the EU.’

While Thursday’s German Consumer Price Index data is expected to see no change from the provisional figure it could nevertheless encourage the Euro to trend higher against its rival.

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TAGS: Currency Predictions Daily Currency Updates Euro Forecasts