Published On: Wed, Sep 4th, 2019

Pound Euro exchange rate: GBP/EUR edges higher despite risk of UK recession | City & Business | Finance

Prime Minister Boris Johnson’s first parliamentary defeat saw cross-party opposition and more than twenty Tory rebel MPs table a bill to delay the UK’s exit from the European Union. The resulting blow to Johnson’s unyielding Brexit plans saw positive investor reactions and an upswing in support for Sterling. Mr Johnson argued the bill would “hand over control” of Brexit negotiations to the European Union. Buoyed by the prospect of a scuppered no-deal outcome, even the worst performance in the UK services sector since 2008 and the threat of a looming UK recession could do little to dampen Sterling sentiment.

Commenting on this morning’s PMI data, Chris Williamson, Chief Business Economist at IHS Markit noted: 

“After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into a recession.”

Meanwhile, Markit revealed that while the German services sector remains solid there are signs of underlying weakness. 

August’s German PMI showed a rise in both business activity and employment, while the German composite PMI also edged up, but services confidence slumped close to a five-year low which could potentially weigh on the single currency.

The single currency could experience further pressure as investors brace for the European Central Bank (ECB) meeting next week.

Comments from ECB policymakers in the meantime have cast doubts over the scale of the central bank’s expected stimulus package.

While the euro was able to edge up against a handful of peers, political factors continued to buoy Sterling.

Looking ahead, the Prime Minister is expected to call for an early general election in October which could cause further uncertainty for the pound. 

While the market is likely to assume MPs will be successful in blocking a no-deal, a prolonging of Brexit uncertainty could limit Sterling’s gains. 

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