Brexit optimism was once again responsible for the pound pushing higher. The pound euro exchange rate gained 0.4% across the session on Tuesday, hitting a six-month high of €1.1478.
Brexit remains the key focus for pound traders. The pound keeps moving higher as investors grow increasingly convinced that there will be a Brexit deal, despite the UK Prime Minister’s office insisting that the two sides are still far apart.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.h If the euro amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around:1 EUR = 0.87271 GBPIn this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro.|
Brexit Secretary Dominic Raab coming out of a cabinet meeting with his thumbs up, was sufficient to send the pound higher. Investors are looking for, and buying into, the smallest sign that could indicate the UK will agree a Brexit deal.
Reports that UK PM Theresa May has ordered her ministers to make a final push for a Brexit deal is also supporting the pound. Ministers have been warned to expect another cabinet meeting later this week to approve an outline deal on Britain’s exit treaty. This will prepare the way for an extraordinary European Council meeting in November to sign it off. The wheels are in motion for a deal and the pound is responding accordingly.
|Why is a “soft” Brexit better for sterling than a “hard” Brexit?|
|A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value.|
The UK economic calendar is quiet, with just mid-tier housing data for investors to look out for. This means that Brexit developments will continue to dominate trading for the pound.
A mixed bag of economic data from the eurozone received a tepid reaction from euro traders in the previous session. Whilst service sector activity remained strong in the eurozone as a whole, France and Italy were noticeably weak. The service sector pmi for Italy fell to 49.2, significantly below the 52 figure that analysts had anticipated, whereby any figure under 50 represents contraction. This slow down in Italy comes as the Italian government is looking to increase spending, which will also increase the budget deficit substantially, in order to boost the economy. Brussels have so far rejected Rome’s spending plan.
Today investors will continue to look towards the eurozone economic calendar with releases from German industrial production, German construction and Eurozone retail sales expected to drive movement.
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