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Pound Euro Exchange Rate Hits 6-Day High, on ECB Delay

Market CommentaryPound Euro Exchange Rate Hits 6-Day High, on ECB Delay
Pound Euro Exchange Rate Hits 6-Day High, on ECB Delay
Pound Euro Exchange.

The pound to euro interbank exchange rate has hit 1.1204 today. This is its highest in six days, or since June 25th.

By contrast, back on June 28th, British sterling was as low as 1.1127 versus the common currency. So it's since risen by over +0.75 cents, or by +0.69%.

This could benefit you, if you're a Briton thinking of buying property abroad in Spain, France or Italy, or a UK business owner making international payments to the Eurozone.

This is because, when you transfer money abroad, you might now get a higher euro total in your Eurozone bank account, compared to if you'd transferred money this weekend.

In turn, this could make buying Spanish, French or Italian property abroad more affordable for you, or cut your costs to import Eurozone goods or services.

You can stay-up-to-date with the pound to euro interbank exchange rate, on Pure FX's Rates & Tools page. Scroll to the Latest Market Rates Widget, to see today's rate and for the last week.

Also, you can check what's affecting the value of the British pound against the euro, on our GBP to EUR Exchange Rate Updates page. Click on the latest article to read what's new.

A first factor why the pound euro exchange rate reached this six-day high is because the Eurozone's decision to choose the next European Central Bank (ECB) President may be delayed.

However, looking forward, the value of the pound sterling against the euro may be influenced by the fact that likely Prime Minister Boris Johnson has refused to rule out proroguing Parliament.

Let's look more closely at these reasons why sterling has gained against the euro. You might find this useful, to help you decide when to transfer money to the UK later this year.

Pound Euro Exchange Rate Rises, as ECB Choice May be Delayed

As I mention, a first reason why the pound to euro interbank exchange rate has hit this six-day high is because the Eurozone might delay its decision about who'll be the next President of the European Central Bank (ECB).

This follows an EU summit over the weekend, in which the decision was scheduled to be announced, yet has been delayed, reports FX Street.

Over the weekend, the Eurozone’s 19 leaders met to decide who'll replace current ECB President Mario Draghi, when he steps down on 31st October 2019.

Initially, the President of Germany's central bank, the Bundesbank, Jens Weidmann, hoped to replace Mr. Draghi. Yet Mr. Weidmann didn't win the support he'd wanted among the Eurozone's 19 member states.

It's thought that Mr. Weidmann didn't win majority support to become ECB President, because he's considered "hawkish". This means that Mr. Weidmann would like to lift the Eurozone's interest rates above their current 0.0%, to fend off a possible rise in inflation.

However, most Eurozone members want interest rates to stay low, to help stimulate economic growth.

Instead of Mr. Weidmann, some Eurozone members have suggested the Bank of Finland's Governor, Olli Rehn.

Mr. Rehn is considered a compromise candidate, first because he's neither German nor French, so he won't be seen as supporting either of the Eurozone's two biggest members. In addition, Finland stands in the middle between the Eurozone's Western and Eastern blocs.

However, although Mr. Rehn seems like a good compromise candidate, so far he's supported existing President Mario Draghi's policy of low interest rates and extraordinary stimulus.

For example, following Mr. Draghi's suggestions recently to inject further funds into the Eurozone's economy, Mr. Rehn agreed: "In the absence of improvement, additional stimulus will be required."

With all this in mind, the euro has weakened, first because the Eurozone has yet to agree a replacement for Mr. Draghi. This delay worries the financial markets.

Second, the euro has also weakened, because it looks like the Eurozone is leaning towards Olli Rehn, who may continue Mario Draghi's policies of low interest rates and extraordinary stimulus.

Pound May Be Influenced, as Boris Refuses to Rule Out Proroguing Parliament

However, looking forward, the value of the pound to euro interbank exchange rate could be influenced by the fact that the likely next UK Prime Minister, Boris Johnson, has refused to rule out proroguing Parliament.

Proroguing Parliament means shutting down Parliament, so that Mr. Johnson could force through a 'No Deal' Brexit, without MPs objecting or stopping him.

Speaking last Thursday at a Conservative Party leadership hustings, Mr. Johnson told the assembled Tory members that it would be an "absolute folly" to rule out a 'No Deal' Brexit, according to The Guardian.

The vast majority of Tory members strongly support Brexit, so Mr. Johnson's stance could win him votes to become Prime Minister, against his rival Foreign Secretary Jeremy Hunt.

The thing is though, MPs in the House of Commons have already voted three times to reject a 'No Deal' Brexit, as party of discussions over Theresa May's draft Brexit agreement.

So for Mr. Johnson to get through a 'No Deal' Brexit, he'd either need to convince MPs to change their minds and support exiting the EU without a deal, or shut down Parliament to do it.

Last Thursday, Mr. Johnson moderated his remarks, by saying that: "I don’t particularly envisage the circumstances in which it would be necessary to prorogue Parliament, nor am I attracted to that expedient."

Yet the probable Prime Minister has also insisted that the UK will exit the EU with or without a deal by the end of October, "come what may, do or die."

Mr. Johnson's remarks have worried the financial markets, because the contribute further to the UK's Brexit uncertainty.

This is because, first, it's possible that, if Mr. Johnson tries to prorogue Parliament, MPs might first force a vote of 'No Confidence' in his government. If Mr. Johnson loses a 'No Confidence' vote, he'd have to call a general election.

Second, the last time Parliament was prorogued to prevent MPs discussing a topic was before the English Civil War, in the 1640s.

So were Mr. Johnson to try and shut down Parliament to force through a 'No Deal' Brexit, this might spark a constitutional crisis in the UK. This would further add to the UK's political instability, which might affect the value of 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 peter.lavelle@purefx.co.uk.

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