The pound euro exchange rate experienced a volatile session on Tuesday. The pound rallied hard on positive Brexit news, whilst euro traders cheered strong eurozone data and a softening in tone from Italy. The pound euro exchange rate dropped to a low of €1.1180 before charging to high of €1.1249. The pair gave up almost all the gins to close flat.
|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 GBP In 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.|
The European Court of Justice’s top legal advisor decided that the UK can withdraw the Article 50 notice without EU approval. This means that the UK can unilaterally end Brexit, halting the process of removing Brittan from the European Union without permission from Brussels or other European countries. This development came as the UK Parliament started a five-day debate that will conclude on Tuesday 11th with the meaningful vote in Parliament. Ultimately, it gave hope to pound traders that there is still a way to reverse the damage done so far.
News that Theresa May was in contempt of Parliament for withholding the legal advice over Brexit took the shine off sterling’s rally sending the pound lower. This was yet another set back for Theresa May and illustrates her declining authority within her government and Parliament.
Finally, the pound rallied off its lows as Parliament voted in favour of giving itself more power over the next steps of Brexit should Parliament reject Theresa May’s Brexit. Many MP’S are not prepared to crash out of the EU without a deal. This amendment reduces the chances of a no deal hard Brexit.
|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.|
Today Brexit headlines will continue to drive the pound. Investors could glance quickly towards service sector data. Analysts predict that service sector activity has picked up in November. A stronger number could help support the pound.
The euro was in favour across the board on Tuesday as strong wholesale inflation data and a softening of stance by Rome regarding their spending plans boosted demand for the common currency.
Reports that Italy has agreed to placate the EU over its spending plans helped lift the euro. Fears had been brewing that the Italian government was on course for a full-on clash with Brussels. The Italian Prime Minister said that he will be preparing a new budget for the European Commission in order to avoid actions that could cause unrest in the financial markets. The easing of political risk lifted the euro.
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