The Pound looks set for a volatile few weeks as the Conservative Party Conference draws to a close. British politics continues to be the main driver for Sterling exchange rates and these next couple of months will be imperative for the future direction of GBP EUR rates. Theresa May will be speaking at the Party Conference this morning where she will try and reunite the Party behind her Chequers proposal.
Also speaking today will be Boris Johnson, who will be pushing his alternative vision of Brexit which seeks to establish a Canada plus style trade arrangement which would offer a cleaner break from the EU. Expect considerable volatility after both of these speeches as there are still major uncertainties as to the type of Brexit that is delivered. It’s one thing coming to an arrangement with the EU on a deal but it is another to get that deal through Parliament with so many differing views on how close the relationship with the EU should be. The threat of a no deal Brexit should not be underestimated, and if this fear continues the Pound is likely to see further weakness against the Euro. A change of direction would also likely see movement for the GBP EUR pair.
UK Purchasing Managers Index data is released tomorrow for services and acts as a good barometer for the dominant sector. Expect volatility on the back of the numbers if they are different to what is expected. Expectation is for expansion in the services industry with a reading of 53.9 which suggests the sector is performing reasonably well in the current climate.
Euro exchange rates however look set for a potential negative period after the Italian Government presented the 2019 budget and has vowed to increase spending which will raise the fiscal deficit. There are concerns that this will not only be a risky move for Italy, where finances are in poor shape, but also that the financial risks could spill over into the wider EU economy. Conversations will continue between Italian leaders and the EU commission but these could go down to the wire before any agreement is made.
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