If you're a Brit thinking of selling your property abroad in Spain or France, or a European citizen planning to emigrate to Great Britain, and you need to transfer money to the UK, it might interest you to know that the euro to the pound interbank exchange rate has risen so far this week.
To be specific, the euro has gained in value versus sterling from 0.8505 on Monday 6th May, up to 0.8584 at the time of writing today, on Wednesday 8th May. This is an increase of over +0.75 cents, or +0.93%, and is the euro's strongest point against the pound in 5 days, since Friday 3rd May.
As a result, when you exchange euros for pounds, having sold your Mediterranean holiday home, you might now get a higher sterling total in your UK bank account, compared to earlier this week.
Two partial explanations why the euro has strengthened versus the pound are, first, because the Conservatives and Labour's cross-party Brexit talks have broken down. Second, the Eurozone economy has showed signs of improving.
Let's take a closer look at these factors that have affected the exchange rate, for your money transfer from the Eurozone to the UK.
Tory and Labour Cross-Party Brexit Talks Break Down
A first reason why the euro to the pound interbank exchange rate has risen this week is because it's been reported that the Conservatives and Labour’s cross-party Brexit talks have slowed.
Ever since last month, when the EU extended the UK's Brexit deadline to October 31st, the UK's two main political parties have been negotiating a version of Brexit, to pass through the House of Commons. Until recently, it was thought that talks were going well. For example, David Lidington, the de facto Deputy Prime Minister, said last Wednesday 1st May that talks were "productive" and "positive".
However, it's now been reported that talks have broken down. In particular, Labour's negotiators have accused the government of being "disingenuous" about the UK remaining in the EU's Customs Union, after Brexit. This is one of Labour's objectives for the cross-party talks, and a point on which the two parties are divided.
According to the BBC's Political Editor, Laura Kuensseberg, "Labour source says ministers more or less admitted they weren't really putting much that was different on the table - they say they will still pursue an FCA, then go to bare bones customs union if that fails, with more explicit language about that in the political declaration."
Moreover, while Conservative sources described this week's discussions as "detailed and constructive", Labour sources told the BBC's Mrs. Kuensseberg that talks were "tense and robust". Mrs. Kuensseberg adds that "it sounds like they had a bargy for several hours over customs policy."
As a result, it now looks unlikely that the Conservatives and Labour will agree a form of Brexit to present to Parliament this week. Prime Minister Theresa May has moved back her provisional deadline for when she expects the UK to exit the EU, to August 1st. For financial markets and UK businesses, this extends the UK's Brexit uncertainty, so has helped lift the euro versus the pound.
Pressure Increases on Theresa May to Resign
In addition, a further reason why the euro to the pound interbank exchange rate has risen this week is because it's been reported that the pressure on Prime Minister Theresa May to resign her post has increased, from within her own Conservative Party.
In particular, on Tuesday 7th May, Sir Graham Brady, the chairman of the body which represents all Tory MPs outside the government, the 1922 Committee, met Mrs. May, to ask for details about when she plans to resign. Mrs. May has previously confirmed that she'll give up the prime ministership, once the UK has exited the EU, and before talks about the future trade relationship start.
Mr. Brady asked the Prime Minister to set out a clear timetable for when she plans to depart. This emphasises the pressure that's on Mrs. May to resign from among her own Tory MPs, and tells us how eager Conservative MPs are to have a new leader. Money markets now think that there's an 80% chance that Mrs. May will have exited as Prime Minister, by year's end.
According to Robert Peston, ITV's Political Editor, "there is an expectation and hope among Tory MPs and her cabinet colleagues that she will announce a departure date that would allow Tory MPs to choose their shortlist of two candidates in June or July - which would then permit hustings of Tory members over the summer and the election of the new leader before the Tory conference."
Also, further increasing the pressure on Mrs. May, the local Conservative associations have confirmed that they'll hold a vote of No Confidence on Mrs. May's leadership, on June 15th.
This has strengthened the value of the euro versus the pound, because financial markets worry that, if the Conservatives throw out Mrs. May as Tory leader, they'll then choose a hardline pro-Brexiter as their new leader, such as former Foreign Secretary Boris Johnson.
If so, this could complicate the UK's negotiations about its future trade relationship with the EU, and lift the odds that the UK might distance itself from its closest trade partner. In turn, this might slow the UK's economic growth in coming years.
Eurozone Economy Beats Forecasts in Early 2019
What's more, another partial explanation why the euro has risen versus the pound this week is because the Eurozone's economy has showed signs of improving recently.
Most importantly, the European Commission's official statistics body, Eurostat, reported last Tuesday 30th April that Eurozone GDP expanded by +0.4% in Q1 2019, between January and March. This compares to economic growth of just +0.2% in the preceding three month period of Q4 2018, between October and December, and exceeds economists' forecasts for a +0.3% expansion.
In particular, Italy exited recession at the start of this year, growing by +0.2%, buoyed by rising exports. Meanwhile, France's GDP grew by +0.3%, lifted by faster household consumption, while Spain's economy expanded by an excellent +0.7% too.
This "is a testament to the resilience of domestic demand that benefits from a strong labour market, accommodative monetary policy and some fiscal stimulus. It will be a big relief for the ECB as it supports its baseline forecasts and will likely relieve some pressure to dish out more monetary stimulus," commented Oliver Rakau, an economist at Oxford Economics, about this data.
Since last Tuesday, the Eurozone's economic performance has continued to exceed predictions. For example, Sentix reported this Monday 6th May that investor confidence in the common currency bloc reached +5.3 in May, well ahead of forecasts for +1.4. Meanwhile, this morning we learnt that Germany's industrial production grew by +0.5% this month, above predictions for a -0.5% fall.
These upbeat economic results may reassure financial markets and businesses that the Eurozone's growth slowdown in the second half of 2018 was just a hiccup. In turn, as the Eurozone's performance exceeds expectations, more money managers might decide to buy European assets, thus contributing to lift the value of the euro versus the pound.
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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email email@example.com.