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31 January Brexit ‘Flextension’ Leaves Euro Pound (EUR/GBP) Exchange Rate Flat

Euro Pound Sterling (EUR/GBP) Exchange Rate Muted as EU27 Offer Three-Month ‘Flextension’

The Euro Pound Sterling (EUR/GBP) exchange rate remained flat, and the pairing is currently trading at around £0.8644.

Sterling was left under pressure on Monday as the EU announced the length of the delay they will grant the UK.

Last week, the bloc agreed that it would allow the UK to extend Article 50, although a draft text of the agreement from the EU27 included multiple possible dates for the new Brexit deadline.

The dates include the 30 November, 31 December and the 31 January, while the EU settled on an extension to the end of January.

Donald Tusk, European Council President announced the decision, and tweeted:

‘The EU27 has agreed that it will accept the UK’s request for a Brexit flextension until 31 January 2020. The decision is expected to be formalized through a written procedure.’

Sterling (GBP) Flat Ahead of PM’s General Election Motion

This morning’s announcement of a longer Brexit extension gave Sterling a slight upswing of support, but the pairing was still left flat.

However, the longer extension also means Prime Minister Boris Johnson is likely to push harder for an early general election.

Commenting on this, London Capital Group’s Ipek Ozkardeskayta noted:

‘As it stands today, the probability of a no-deal Brexit is very slim. From the market perspective, a no-deal scenario is almost fully reflected in Sterling prices near the 1.30 mark against the US Dollar.

‘Pound traders have further trimmed their net short positions during the week that ended on October 22nd and have already moved on to pricing Britain’s next political challenges.’

Meanwhile, British lawmakers are scheduled to vote later on Prime Minister Boris Johnson’s call for a general election on 12 December.

However, the Prime Minister looks unlikely to get the approval of two-thirds of MPs that is needed to pass the motion.

Euro (EUR) Left Muted as Banks Take Credit Out of the Economy

The single currency was left flat as data revealed that bank lending to companies in the Eurozone slumped last month in September.

Monday’s data from the European Central Bank (ECB) suggests that lending is slowing after a period of resilience despite an economic slowdown in the bloc.

Corporate loan growth fell from 4.3% in August to 3.7% in September, however, household lending growth remained steady at 3.4%.

The data suggests the banks are taking credit out of the economy, despite the ECB’s fresh stimulus scheme that encourages banks to continue to provide credit.

Euro Pound Outlook: Will a Dovish Bundesbank Weigh on EUR?

Looking ahead to later today, the Pound (GBP) could slide against the Euro (EUR) following parliament’s decision on an early general election.

If MPs decide to back Boris Johnson’s calls for an early election, it is likely to cause further Brexit uncertainty and will likely weigh on Sterling.

Meanwhile, it is likely the single currency will be left under pressure ahead of several speeches from German Bundesbank policymakers, including President Jens Weidmann.

If Weidmann focuses on the risks to the bloc’s largest economy that were revealed last week, such as weaker consumer confidence, it is likely the Euro Pound (EUR/GBP) exchange rate will be left muted.