Article 50 Extension
UK prime minister Theresa May continues to insist that the UK can leave the European Union with a decent deal, but as we have seen from the recent votes, a deal seems to be a long way off. This week May’s deal failed to go through parliament, her deal being rejected by a total of 149 votes.
Yesterday evening, the House of Commons confirmed that they will voting against a ‘no deal’ scenario, and it seems that we are now destined for an extension to Article 50. This evening, MPs will vote on whether or not there should be an extension, and May will then head to Brussels to request permission from the EU.
At present, there is the risk that Brexit will not be concluded in the near future. May is suggesting that if her deal is not agreed, then an extension could last for the foreseeable.
Is the Euro going up or down against the Pound?
The good news is that a ‘no deal’ is currently off the table. This could give Sterling support in the near term and explains why we have seen gains for Sterling overnight. The Pound actually hit a new high of 1.1805 against the Euro, the best rate since May 2017.
I think there is potential for further gains after tonight’s vote, although the outcome is largely already factored into current levels.
The Euro could be in for a rough ride. The bloc’s third largest economy, Italy, has just entered recession and its debt is second only to Greece. Germany, the engine room of the bloc, has only recently narrowly avoided recession.
Eurozone growth forecasts have been substantially reduced, and the European Central Bank (ECB) has also recently ceased utilising Quantitative Easing (QE). QE is essentially pumping money into an economy in order to stimulate growth. At one point monthly increments were as much as €80 million.
The Eurozone economy has clearly not coped well since they stopped QE and Mario Draghi, the President of the ECB, has now stated that loans will be taken out to pump more money into the economy. This does not bode well for the Euro, although Brexit will continue to be the key driver for GBP/EUR until we have clarity on the situation.
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