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Despite some broad uncertainties about whether a UK-EU Brexit deal could make it past UK Prime Minister Theresa May’s own government cabinet, let alone all of UK Parliament, the British Pound to Euro (GBP/EUR) exchange rate continues to trend relatively closely to its best levels amid broad Euro weakness.
Since opening this week at the level of 1.1442, <a title="Pound Sterling Euro Exchange Rate LIVE GBP/EUR Firms as UK Wage Growth Strikes 10 Year High” target="_blank" href="https://www.exchangerates.org.uk/news/23524/pound-sterling-euro-exchange-rate-live-gbp-eur-firms-as-uk-wage-growth-strikes-10-year-high-.html">GBP/EUR</a> has been climbing and has gained almost half a cent. While GBP/EUR has been unable to hold Tuesday evening’s six month high of 1.1548, the pair only trended around half a cent lower despite Brexit jitters on Wednesday. At the time of writing, GBP/EUR trended in the region of 1.1490.
<h2>Pound (GBP) Struggles to Sustain Gains as UK Cabinet Uncertainty Weighs on Brexit Deal Excitement</h2>
Tuesday excitement that the UK and EU had agreed to a draft of a Brexit agreement was short-lived, as investors suddenly became more concerned about the significant number of obstacles still blocking the deal’s path.
After weeks of Sterling being bolstered by speculation that the UK and EU could soon reach an agreement on a Brexit deal, the text of that deal finally being drafted actually had little impact on Sterling.
Instead, investors were left highly anxious as they anticipated a key UK government cabinet meeting set to take place on Wednesday afternoon.
The meeting will see UK Prime Minister Theresa May briefing her cabinet on the text of the Brexit deal. Markets are concerned that unless the bill gets strong approval from ministers, its path through UK Parliament will be far tougher.
According to Kallum Pickering from German bank Berenberg:
<blockquote>‘Until the text of the agreement is published, and the various Brexit-factions of government take their positions, it is difficult to judge exactly how the numbers are shaping up ahead of the parliamentary vote. Suffice to say that, the Prime Minister may have a political mountain to climb.’</blockquote>
Essentially, the Pound is in limbo today as investors highly anticipate upcoming signs on whether the Brexit bill will even make it to a speculated UK-EU summit later this month.
As a result, even Britain’s October inflation results, which came in weaker than forecast, failed to influence Sterling much.
<h2>Euro (EUR) Unappealing as Italy Defies EU Requests Regarding Budget Issue</h2>
The Euro hasn’t been particularly appealing this week so far, as the shared currency is weighed by both economic news and Eurozone political developments.
Since Tuesday, the issue of Italy’s contentious budget plan has returned to headlines. Last month the EU gave Italy until the 13th of November to revise its budget plan to better fit EU guidelines, after the bloc rejected Italy’s initial budget plan.
However, Italy confirmed on Tuesday night that it was sticking to its plan – a plan focused on larger government spending and borrowing.
The EU’s rejection of Italy’s budget plan was unprecedented, as was Italy’s defiance.
It has worsened market concerns about tensions between Italy’s anti-establishment government and the EU, as well as sparked speculation about if the EU may begin to take disciplinary measures against Italy.
On top of political jitters, the Euro has been weakened by the latest Eurozone data which has continued to indicate that economic activity in the bloc’s biggest economy is slowing.
Germany’s Q3 Gross Domestic Product (GDP) growth projections came in far below forecasts, at -0.2% quarter-on-quarter and falling from 2% to 1.1% year-on-year. This may have dampened <a title="ECB" target="_blank" href="https://www.ecb.europa.eu/home/html/index.en.html">European Central Bank (ECB)</a> tightening bets.
<h2>GBP/EUR Forecast: Brexit Meeting Could Cause Surge or Plummet</h2>
Investors were hesitant to move much on the Pound on Wednesday as reaction to the UK-EU Brexit deal from UK Prime Minister Theresa May’s government cabinet could give markets a better idea of how the bill may fare against UK Parliament.
Even if the draft text makes it through this and an emergency UK-EU Brexit summit is held before the end of the month, the bill may still face significant obstacles in Parliament before it can enter UK law.
Essentially, if the cabinet meeting ends with ministers optimistic about Prime Minister May’s Brexit deal Sterling is likely to surge.
Multiple resignations or criticisms from within her own government could worsen ‘no-deal Brexit’ fears and send Sterling plummeting.
As the situation develops investors will keep a close eye on it, meaning the Pound may not be heavily influenced by Thursday’s upcoming UK retail sales results.
Similarly for the Euro, investors are watching carefully for the EU’s response to Italy’s insistence on its budget plans.
Due to US-Eurozone trade uncertainties though, Thursday’s Eurozone trade balance stats from September could still influence the Pound to Euro (GBP/EUR) exchange rate.
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