The sterling vs euro interbank exchange rate stands at 1.1755 this morning, very close to where it was this time yesterday. This is just -0.17% below the pound's 22-month high versus the euro, its strongest since May 14th 2017, reached last week, of 1.1775.
In addition, since the start of this year, sterling has risen from 1.1087 against the common currency, a gain of +6.03%. As a result, when you transfer money to Spain or France from the UK, to buy a holiday home or retire, you might now get a notably higher euro total than on January 1st.
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Let's take a further look at what's affected the pound versus the euro recently, and which factors could influence the exchange rate further, looking ahead.
MPs Vote Against No Deal Brexit
A first factor that has influenced the value of sterling versus the Eurozone's common currency is that, yesterday night, MPs voted against a "No Deal" Brexit.
In the House of Commons on Wednesday, MPs chose by 313 to 312 votes, a majority of just one, against the UK exiting the EU without a deal.
The draft law was jointly proposed by Labour MP Yvette Cooper and Conservative MP Sir Oliver Letwin. It also obliges Prime Minister Theresa May to return to Brussels, and ask the EU for an extension to Article 50, the UK's Brexit negotiating timetable.
The motion will now pass to the House of Lords to be ratified.
This news has further reassured the financial markets that the UK is likely to retain close ties to the EU after Brexit. Given that the UK does roughly half its trade with the EU, it's thought that this will support the UK's economic growth in future. So this has helped support the sterling vs euro exchange rate.
May and Corbyn's Cross-Party Brexit Talks "Constructive"
In addition, a further factor that's influenced the pound to euro interbank exchange rate recently is that Prime Minister May and Jeremy Corbyn, the leader of the opposition Labour Party, have held their first round of cross-party talks about Brexit, and described discussions as "constructive".
On Tuesday April 2nd, Mrs. May announced at 10 Downing Street that she'd start discussions with Mr. Corbyn, to "break the logjam" in Parliament over Brexit.
This follows months in which Mrs. May has struggled to win support for her draft Withdrawal Agreement among "hard Brexit" Conservative MPs, as well as a fortnight in which MPs voted against all the Brexit options, in two rounds of "indicative votes".
Following Mrs. May and Mr. Corbyn's talks, a Labour spokesperson said: "We have had constructive exploratory discussions about how to break the Brexit deadlock. We have agreed a programme of work between our teams to explore the scope for agreement."
This too has made investors and economists feel more upbeat about the possibility that the UK will exit the EU with a deal in the coming weeks. So this has contributed to lift the value of the pound against the euro.
Risk of UK General Election Growing
However, it's important to note that there are risks for the UK's Brexit outlook, which could affect the sterling vs euro exchange rate, looking ahead. This is even though MPs' decision to vote against a "No Deal" Brexit, plus Mrs. May's and Mr. Corbyn's "constructive" talks, have helped support the pound this week.
In particular, the Prime Minister's decision to hold cross-party talks with Labour has upset a number of Mrs. May's own Conservative MPs.
For example, following Mrs. May's announcement, Nigel Adams, the Minister for Wales, has resigned, saying that: "Following yesterday’s cabinet, this morning I’ve been to Downing Street & resigned my position".
In addition, well-known MPs, such as former Foreign Secretary Boris Johnson, the leader of the European Research Group (ERG) Jacob Rees-Mogg, and Mrs. May's partners in Parliament, the Democratic Unionist Party (DUP), have all expressed their opposition to the Prime Minister's decision to talk with Jeremy Corbyn.
As a result, it's conceivable that, even if Mrs. May reaches an agreement with the Labour leader and they pass a Brexit deal in Parliament, Conservative MPs could attempt a coup against Mrs. May. This might force the Prime Minister to call a general election, to demonstrate that there's public support for her Brexit strategy.
The thing is though, if there's a general election, then no one knows what the result would be. The Conservative Party might replace Mrs. May with a "hard Brexit" Prime Minister, or the Labour Party could win a majority in Parliament.
This complicates the UK's Brexit outlook, which encourages the financial markets to be cautious about buying the pound.
Labour Lobbies For Second Brexit Referendum
In addition, another element of uncertainty for the UK's Brexit negotiations, and thus the sterling vs euro exchange rate, is that several Labour MPs want any agreement between the Prime Minister and Jeremy Corbyn to go to a public vote.
Following Mrs. May's and Mr. Corbyn's discussions yesterday, the Labour MP and Shadow Foreign Secretary, Emily Thornberry, wrote to her colleagues insisting that any cross-party draft deal be put a referendum, before MPs vote on it.
Mrs. Thornberry said: "can I – in writing – confirm that my votes are that yes, any deal agreed by parliament must be subject to a confirmatory public vote, and, yes, the other option on the ballot must be remain".
This tells that the Mr. Corbyn could struggle to get his Labour MPs to vote on favour of any agreement he makes with the Prime Minister, unless he agrees to first put the agreement to a public referendum.
However, it's unclear that, if a Conservative-Labour draft agreement went to a public vote, the general public would support it.
So this too muddies the outlook for Brexit, and so could impact the value of sterling versus the Eurozone's common currency.
UK's Dominant Services Sector Contracts
Also, another risk for the UK's Brexit outlook, and the sterling vs euro exchange rate, is that the UK's vast services sector shrank in March, said a respected poll on Wednesday.
According to economics watchdog IHS Markit yesterday morning, the UK services Purchasing Manager's Index (PMI), a closely-watched survey of British service firms' activity, fell to 48.9 last month. This is below February's figure of 51.3, as well as the 50.0 figure that signals economic growth.
This is the UK services sector's first contraction in two years, while new orders fell for the third consecutive month. IHS Markit said that this is because of the "intense political uncertainty" surrounding Brexit.
This news follows reports earlier this week, in which we learnt that the UK's construction sector contracted in March, while UK manufacturing activity surged, but only as factories stockpile ahead of Brexit.
Economist Ruth Gregory of Capital Economics now predicts that UK Gross Domestic Product (GDP), the size of the economy, fell by -0.1% in Q1, between January and March. If so, this would be the UK's worst economic growth performance since the last three months of 2012.
These data suggest that, even though the UK's Brexit outlook may be brightening, the uncertainty is weighing on Britain's economic output. This could affect sterling vs euro in the foreseeable future.
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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 firstname.lastname@example.org.