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GBP EUR Exchange Rate Tumbles to New Weekly Low over Concerns over DUP Deal

June 21, 2017 - Written by John Cameron

The Pound Euro (GBP EUR) exchange rate slipped even further this morning, closing in on the multi-month low stuck last week as investors worry about the political landscape in the UK ahead of the Queen’s speech.

Political Uncertainty Continues to Weaken Pound (GBP)


Sterling sentiment remains low this morning ahead of the Queens speech in which the British Monarch is expected to outline the Conservative government’s legislative policies for the next two years.

However clouding the speech is Theresa May’s failure to strike a deal with the Democratic Unionist Party in Northern Ireland nearly two weeks after the General Election which left the Tories without a majority in Parliament.

May is seeking to form an agreement with the DUP in order gain the support of the party’s 10 MPs to help pass legislation as a minority government.

While the DUP also supports a hard Brexit, talks are reported to have stalled over the issue of extra funding for Northern Ireland, with members of the DUP warning that the party should not be ‘taken for granted’ by the Tories.

Cabinet minister, Chris Grayling sought to reassure observers that talks would not derail the government’s legislative plans;
‘We have got some days until we have a vote on the Queen's Speech. It is not on Queen's Speech day. The vote happens many days later as we have an extended debate first and I am sure we will have a sensible arrangement between the parties when that time comes.’

While DUP leader Arlene Foster has indicated that her party will back the Queen’s speech despite an agreement not yet being reached, markets remain concerned over Theresa May’s ability to form a long lasting agreement with the party, with one senior DUP suggesting that her failure to reach a deal reflects poorly on her ability to effectively negotiate in the ongoing Brexit talks.

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Investors are also concerned by continued speculation that the PM may be ousted by her party as the election blunder and failure to reach a deal with the DUP continues to frustrate many members of the Tory party.

Sterling Recoups Some Losses as Public Deficit Narrows


Sterling was able to recoup some of its losses this morning however as the Office for National Statistics (ONS) reported that the UK Public Deficit fell from £8.68bn to £5.99bn in May.

This was a slight improvement on the £7bn economists forecast that the government would have to borrow last month in order to balance the books and was largely attributed to a 4.3% increase in VAT receipts.

Scott Bowman, UK economist at Capital Economics said;
‘The strong revenue growth partly reflected a 4.3% rise in VAT receipts – perhaps a sign that consumer spending growth hasn’t slowed too sharply recently.’

‘That said, we wouldn’t read too much into the borrowing figures for the first few months of the fiscal year as they are based on a significant amount of forecast data. Accordingly, we still think that borrowing for the fiscal year as a whole will increase by several billion pounds as a number of one-off factors that lowered borrowing in 2016-17 unwind.’

Euro (EUR) Advances as Eurozone Confidence Looks Set to Rise


The Euro continued to find strength today ahead of tomorrow’s Eurozone Consumer Confidence data which is expected to show that household sentiment continued to improve in line with the bloc’s recent economic growth.

This may be reinforced by Friday’s PMI burst which is expected to show that both the Eurozone’s Manufacturing and Services Sector continued to expand in June, reaching their highest levels since the start of the Eurozone crisis.

Meanwhile the Pound may cede ground again on Thursday as the Confederation for British Industry (CBI) is expected to report that Industrial Trends Orders slipped this month.

Current Interbank Exchange Rates


At the time of writing the GBP EUR exchange rate was trending around 1.1461 and the EUR GBP exchange rate was trending around 0.8725.

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