GBP/EUR rates have remained relatively flat during early morning trading today, with investors’ focus fixed on next Tuesday’s key Brexit vote.
This is the point when UK MP’s will decide whether or not to approved UK Prime Minister Theresa May’s controversial Brexit deal, which has received wide spread criticism over recent days.
It is anticipated that MP’s will vote against the deal initially but the key to how sterling performs over the coming weeks may be linked to the margin of any prospective defeat, if indeed this is the final outcome.
It has been suggested that the PM could lose by up to 100 votes. If this is the case, I cannot envisage a scenario whereby Mrs May would remain in number 10. If she loses by only a handful of votes, it is likely that she will go back to Brussels to see if any concessions can be made, on key issues such as the backstop agreement.
If she fails to appease her fellow MP’s and a second vote is called, or she is forced to step down from her position, then I fear that sterling is likely to take another hit and we could be poised for GBP/EUR rates to drop below 1.10 again.
However, this is by no means a certainty and I believe investors have factored much of this negative feeling into the current GBP/EUR value. Therefore even if the vote goes against the PM as expected, we may not see an aggressive spike for the EUR, with investors waiting to see how the situation unfolds from this point.
We must also consider, however unlikely some may think it is, that Theresa May manages to secure enough votes to rubber stamp the deal. This in my opinion would cause the pound to spike aggressively and we could even see GBP/EUR rates make a move back towards 1.15.
With so many potential outcomes and so much lingering uncertainty, those clients both buying and selling euros over the coming weeks must ask themselves are they prepared to gamble on which direction the pair will take next.
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