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Euro to The Pound Today: No Deal Brexit Risk Remains

Market CommentaryEuro to The Pound Today: No Deal Brexit Risk Remains
Euro to The Pound Today: No Deal Brexit Risk Remains
Euro to The Pound Today. Image credit: Daniel Diaz Bardillo.

The euro to the pound interbank exchange rate has risen by +0.71% in the last day, from 0.8525 up to 0.8586 at the time of writing.

If you're a Briton living in Spain or France and planning to transfer money to the UK, this could be helpful information for you.

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A chief reason why the Eurozone's common currency has strengthened versus sterling is because the risk of a "No Deal" Brexit remains, warn financial markets.

Let's take a look at which factors have contributed to lift the value of the euro to the pound in the past day.

"No Deal" Brexit on April 12th Still Default Option

A first explanation why the euro to pound interbank exchange rate has risen is because it's still the default option that the UK will crash out of the EU next Friday April 12th with "No Deal".

So far this week, MPs in the House of Commons have voted to rule out a "No Deal" Brexit, and compelled Prime Minister Theresa May to return to Brussels, for an extension to Article 50, the UK's Brexit negotiating timetable.

Encouragingly, in reply, European Council President Donald Tusk has signalled that he'd prefer to give the UK an extension of up to a year.

However, Mr. Tusk still has to convince the leaders of the European Union's 27 member states to give the UK more time.

In addition, Parliament would have to accept any offer of an extension from the EU, something which "hard Brexiteers" in the Conservative Party's influential European Research Group (ERG) might oppose. All this must be done in just a week.

With this in mind, financial markets are worried that there's still lots of Brexit uncertainty, and time is short. The default option remains that the UK will exit the EU with "No Deal" next Friday. So this has contributed to lift the euro to the pound today.

Article 50 Extension Could Further Complicate Brexit

Also, a further factor that has influenced the euro versus the pound today is that, if the EU gives the UK more time to negotiate Brexit, this could further complicate Brexit.

For instance, if the EU gives the UK up to a year to decide what form of Brexit it wants, this could encourage MPs to revive options that have already been rejected, like the "Malthouse Compromise".

Moreover, if the UK remains in the EU past May 22nd, the UK would participate in the elections to the European Parliament. This raises the possibility that the UK could elect Brexiteers to the EU Parliament, and further complicate the negotiations.

Paul Spirgel, an analyst on the Thomson Reuters Currency Desk, notes that: "A long delay puts the full selection of options on the table, including general elections, second referendum and new amendments of all kinds."

So if the EU grants the UK a second Brexit extension, this could complicate the Brexit outlook, rather than simplify things. This adds to the Brexit uncertainty, so has helped lift the euro to the pound today too.

Bibliography

  1. Anonymous, "Brexit: EU's Donald Tusk 'suggests 12-month flexible delay'", BBC.com, April 5th 2019.
  2. Anonymous, "Brexit: Carney says risk of no deal is 'alarmingly high'", BBC.com, April 3rd 2019.

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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 peter.lavelle@purefx.co.uk.

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