Pound to Euro exchange rates remain deeply uncertain as political developments in the UK over Brexit drive the pound lower. The deal that has been agreed between UK Prime Minister Theresa May and the EU is now being intensely scrutinised ahead of the meaningful vote to be held in parliament around the time of the 12th December. Support for the deal is still in short demand and it doesn’t have the support of the DUP nor the Labour party after Jeremy Corbyn signalled he could not support the deal.
The Bank of England made a series of extremely dire predictions for the British economy highlighting that in a worst case scenario the pound could fall as much as 25% against both the Euro and the dollar with rates falling to below parity for the GBP EUR pair. Growth was also forecast to fall dramatically as well as rise in unemployment to 7.5%.
GBP to EUR rates have now fallen back below 1.13 and any gains are likely to be limited in the run up to this important vote. The prospect of a no deal scenario is likely to put added pressure on the pound especially considering the default option in the event that a trade agreement cannot be reached to fall back on a no deal under WTO rules.
Meanwhile in the EU the Italian crisis over the proposed 2019 budget remains unresolved with Italy not prepared to adjust its spending plan. There are concerns that Italy could face a financial crisis which would be damaging not just for Italy but also the EU. Italy has debt running at over €2 trillion and 131% of GDP and the EU are not prepared to take a chance for Italy to increase its debt. If it becomes unmanageable this would be a far greater crisis for the EU.
Clients looking to buy or sell Euros will perhaps see one of the most volatile periods ahead around the time of this parliamentary vote which is likely to provide opportunity and disappointment. Something will give at the end of these Brexit negotiations and there could be a major market shift in the GBP EUR pair.
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