The pound to Euro exchange rate remains on shaky ground as British politics continue to create volatility for sterling. With the hung parliament that Britain finds itself with, the direction of Brexit is proving difficult to predict with so many different possible outcomes. The cabinet will meet this morning to discuss escalating planning for a no deal Brexit and any developments will likely dictate the direction of travel for GBP vs EUR.
Only yesterday the leader of the Labour party Jeremy Corbyn called for a vote of no confidence in UK Prime Minister Theresa May after the meaningful vote was delayed until the New Year. There has however been little market reaction as it appears Theresa May has the full support of her party. Even a vote of confidence on the government itself would still likely see the situation the same which makes it very difficult to see the government falling. Whilst a general election is possible it is not looking like the most viable outcome.
The response from the EU is also stark after President of the European Commission Jean Claude Junker stated that “We don’t want the UK to think there can be any form of renegotiation, that is crystal clear. We can add clarifications but no real changes. There will be no legally binding obligations imposed on the withdrawal treaty.” Unless the EU are prepared to tweak the wording on the backstop and offer more than just clarifications it seems difficult to see how the meaningful vote to be held by 14th January will pass through the commons when the Democratic Unionist Party have made perfectly clear they will not support the withdrawal agreement in its current form.
As such a no deal Brexit is perhaps the most likely outcome and with this comes inherent risk for GBP EUR. The Bank of England has given very gloomy worst case scenarios that the pound could fall by as much as 25% in the event of a no deal Brexit. Considering that a bilateral trade agreement between the UK and Switzerland has now been agreed it does highlight that no deal planning is very much underway already.
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