Pound Euro movement is set to be determined by the Government’s Article 50 appeal in the future, while Euro demand will be tied to the Italian referendum aftermath.
Pound Slides against the Euro as Italian Referendum Shocks are Absorbed
The Pound was able to rise notably against the Euro (GBP EUR) when the referendum result was announced, but has since fallen back by -0.4%.
Overall, Sterling demand has been mixed, partly on account of the latest developments for the UK Government.
After losing the right to trigger Article 50 without parliamentary approval in November, the Government has now launched a four-day appeal to try and win back the automatic triggering right.
In the Eurozone, the single currency has found itself recovering across the board following an initial plunge when Italy voted ‘No’ to constitutional reforms and to Prime Minister Matteo Renzi.
While this shattered confidence in the Euro, widespread speculation that the result wouldn’t trigger a Eurozone-wide collapse saw EUR actually rise to higher levels than before the result was announced.
Pound Euro Outlook Dependent on Clear Conclusion to Article 50 Appeal
While this has only been the first day of the Government’s appeal, the outcome of the hearing is expected to have significant implications on how the Pound fares against the Euro next year.
The first day of debates has been mired with technical issues and confusion over fine print in historical legal documents. If this ends up stalling the judges’ verdict in early 2017, the Pound Euro exchange rate is expected to weaken.
When the judges’ decision is finally announced, a dismissal of the Government’s line is likely to boost Sterling due to hopes of a ‘Soft Brexit’. Conversely, granting the Government automatic power over triggering Article 50 is expected to bring a GBP EUR crash as it will strengthen concerns that ‘Hard Brexit’ is on the way.
EUR GBP Outlook Dependent on Italian Referendum Aftermath
The future for the Euro is unfortunately expected to get worse before it gets better as the resignation of Matteo Renzi leaves a significant vacuum of power and influence at the top of Italian politics.
While Italy may soon have a replacement Prime Minister from the ranks of the majority Democratic Party, this figure may also be unelected like Renzi.
If they decide to follow their predecessor’s course by promoting further EU integration and unity, a snap election could be called by opposition parties, which would throw Italy’s fragile state into further turmoil.
None of this would be of benefit to the Euro, which requires a steady political backdrop in order to be considered appealing to investors.
Recent Interbank Exchange Rates
At the time of writing, the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.18 and the Euro Pound (EUR GBP) exchange rate was trending in the region of 0.84.
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