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Pound Sterling to Euro Exchange Rate to Tumble if Italy and EU Come to Budget Agreement

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Pound to Euro Exchange Rate Slides on Hopes of Italian Budget Breakthrough

After climbing last week on a combination of Brexit hopes and disappointing Eurozone data, the Pound Sterling to Euro (GBP/EUR) exchange rate slipped when markets opened on Monday and could fall further later in the week.

Last week saw GBP/EUR jump from 1.1236 to 1.1308 after jumping over half a cent on Thursday. At the time of writing on Monday morning though, Italian budget speculation was boosting the Euro (EUR).

GBP/EUR was pressured and slipped away from its weekend highs, slipping to trend near 1.1285 at the time of writing.

Despite the UK-EU Brexit deal being formally agreed on Sunday, the Pound (GBP) had little reaction to the news on Monday. In fact, the currency’s performance was a little limp.

The Euro, on the other hand, recovered from last week’s lows on Monday as Italian officials offered conciliatory comments regarding Italy’s controversial budget plans.

Pound (GBP) Exchange Rates Little Changed as UK-EU Brexit Deal Finalised

The emergency UK-EU Brexit summit saw the negotiated Brexit deal finalised on Sunday, following over a year of contentious talks on the deal.

However, most of Sterling’s strength on the back of that deal appears to have been run already as the Pound’s movement when markets opened on Monday was largely limp.

Last week saw a brief jump in demand for the Pound, when UK and EU leaders signed a political declaration on the intention of future relations between the nations amid the finalisation of the deal.

For now though, market concerns about the possibility that UK Parliament could block the deal from entering UK law are limiting Sterling demand.

The bill is set to go to Parliament vote in early December, sometime before the next EU summit in the second week of December.

Markets are highly anxious about the perceived lack of domestic support for the Brexit plan, as the plan being blocked could lead to a worst-case scenario ‘no-deal Brexit’ instead of the currently agreed soft Brexit plan.

Euro (EUR) Exchange Rates Supported by Conciliatory Tones in Italian Budget Talks

Last week saw the EU formally reject Italy’s controversial budget plans for a second time, as expected.

However, rather than take a strict stance on issues like potential disciplinary measures, the EU and Italy both expressed a desire to reach some kind of agreement. The tone taken by officials limited the Euro’s losses.

While analysts predicted that the issue of Italy’s budget could bubble away in the background for months, a conciliatory tone from Italian Deputy Prime Minister Matteo Silvini bolstered market hopes for a breakthrough.

According to Connor Campbell from SpreadEx:

‘Comments from Italian deputy PM Matteo Salvini on Sunday, hinting that the country’s controversial 2.4% budget deficit could be lowered, came after reports of a meeting between Prime Minister Giuseppe Conte and European Commission President Jean-Claude Juncker on Saturday night.’

The Euro continued to push higher despite Monday morning’s German business confidence stats from Ifo, which fell short of market expectations.

Pound to Euro (GBP/EUR) Exchange Rate Investors Anticipate Political Developments

Amid a lack of notable Eurozone data due for publication on Tuesday save for France’s latest consumer confidence and jobseekers stats, Pound to Euro (GBP/EUR) exchange rate investors are likely to keep their sights on political developments.

Sterling in particular is likely to react to any perceived shifts in support for the agreed UK-EU Brexit bill.

With just a couple of weeks until the bill is expected to reach a UK Parliament vote, bets on whether or not it will succeed will increasingly drive Sterling movement.

In particular, issues such as the Northern Ireland’s Democratic Unionist Party’s (DUP) support for the bill, as well as opposition from within UK Prime Minister Theresa May’s own Conservative government, will be in focus.

The Euro, on the other hand, will be sensitive to news regarding Italy-EU budget tensions. If there is progress on budget talks or officials show more optimism that some kind of agreement will be reached, the shared currency will strengthen.

Looking ahead, political news will remain in focus but key Eurozone inflation stats on Thursday may influence the Pound to Euro (GBP/EUR) exchange rate too.