The Pound continues to remain in this tight trading range against the Euro with levels for the GBP EUR sitting at just below 1.13. British politics and Brexit are still the biggest drivers for Sterling exchange rates and this week could create more volatility with more votes in the House of Commons. Last night saw the Government win a vote by 305 to 302 on a customs union amendment put forward by the European Research Group (ERG).
More votes are expected today and any defeats by the Government or further resignations could see additional volatility for GBP EUR. This all comes at a time when the EU are not shooting down the proposals but are working on a way to try and move forward to allow for a deal on trade to come out of this. It has been reported that the Government is looking to finish for the summer parliamentary recess a week early to head off any leadership challenge against Theresa May highlighting just how tense this process of leaving the EU has become.
Clients looking to buy Euros are about to see a big focus on the next Bank of England meeting in August. Bank of England Governor Mark Carney has been more hawkish of late and has maintained a more positive outlook for the British economy. If the economic data holds up before the next meeting then there is a high chance the Central Bank will take action and raise interest rates by 0.25%.
The market reaction should be positive although gains are likely to be limited considering most commentators suggest there is already a 70%-80% chance that there will be a rate hike. As such the news should be largely priced into the market. Any gains for GBP EUR are more likely to come from a brighter outlook on Brexit. Whether that comes from stability in the British Government or a more receptive and accommodating EU remains to be seen.
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