Conservative No Confidence Vote Fails to Boost Euro Pound Sterling (EUR/GBP) Exchange Rate
Pound Sterling (GBP) was quick to shake off news that Theresa May will face a vote of no confidence on Wednesday evening, unwinding some of its recent bout of weakness.
While the challenge to May’s leadership of the Conservative Party raises the prospect of further political uncertainty this failed to weigh on GBP exchange rates.
As markets expect a potential defeat to force a delay to the Brexit deadline the news saw the Euro to Pound Sterling (EUR/GBP) exchange rate trending lower instead.
With investors also betting that May will survive the challenge, given stated support among cabinet ministers, reaction to the announcement proved rather muted.
However, as markets brace for the vote the Pound may struggle to find much additional traction against its rivals.
Euro (EUR) Exchange Rates Soften Ahead of ECB Policy Announcement
Confidence in the Euro (EUR) could deteriorate further ahead of Thursday’s European Central Bank (ECB) policy announcement.
Even though the central bank is widely expected to finally wind down its long running quantitative easing programme this may not give EUR exchange rates any particular support.
With the end of QE already largely priced into the single currency investors are instead likely to focus on the general tone of policymaker commentary.
If signs point towards the ECB leaving interest rates on hold for longer in 2019 the upside potential of the EUR/GBP exchange rate is likely to prove limited.
However, greater signs of optimism within the ECB could encourage investors to pile into the Euro, betting that monetary policy will tighten again sooner rather than later in the coming year.
Even so, if December’s raft of Eurozone manufacturing and services PMIs fail to show an uptick in growth momentum this could weigh heavily on the single currency.
EUR/GBP Exchange Rate Volatility to Persist Amid UK Political Uncertainty
UK politics and developments surrounding Brexit are likely to dominate the outlook of the EUR/GBP exchange rate in the days ahead.
Until markets have a greater sense of clarity the mood towards the Pound is likely to remain volatile, with the risk of a possible general election or second referendum hanging over the economy.
Increased odds of a potential no-deal Brexit could also drag GBP exchange rates lower, even if a delay to the Brexit deadline is also on the cards.
If Theresa May does lose the no confidence vote the ensuing period of political instability could offer the EUR/GBP exchange rate a solid boost.
With the UK economy already showing signs of a slowdown the prospect of further uncertainty may drive the Pound to fresh multi-month lows against its rivals.
However, as long as investors see the prospect of a softer form of Brexit emerging from this latest political unrest this should limit the downside potential of GBP exchange rates.