The Pound is in a much more favourable positive following the result of the Italian Referendum yesterday. Pound to Euro exchange rates hit 1.20 on the exchange for the first time in 3 months. The boost for the Pound was somewhat short-lived, and rates have slid back to pre-referendum levels of 1.185.
The Italian Referendum had nothing to do with EU membership, but like Brexit, was a vote against the current Prime Minister and establishment, leading to the resignation of Matteo Renzi.
Just when it looked negative for the Pound, amongst the political uncertainty that the country faces in the wake of Brexit, there appears to be some hope for Sterling. It’s becoming increasingly obvious that an anti-EU wave is building momentum in Europe, and Brexit is just the catalyst that started the chain reaction.
Although Italy’s Referendum had nothing to do with the EU as such, Renzi’s resignation has handed an opportunity to the far right 5-star movement, who have promised to hold an EU Referendum if elected. The same is true for France’s Marine Le Pen and Holland’s Geert Wilders. Coupled with a crippled Greece and QE programme which is due to expire, but may need to be extended by the ECB, a recipe for Euro weakness appears to be brewing.
Those buying foreign currency in the near future should not become too complacent with current rates of exchange, the Supreme Court hearing that begins today could quite easily turn Pound Euro rates on their heads. The appeal, which decides whether Parliament have a say on Brexit terms, is expected to continue for the remainder of December, adding further uncertainty to the Pound’s position. That being said, it is highly expected that the Court will rule in favour of Parliamentary backing.
So what does this mean for the Pound? If Parliament must have the final say in Brexit negotiations, Theresa May and her Government are unlikely to be looking at a hard Brexit, unless there was a transitional period to limit the impact on business. In this case, further Pound strength could emerge in January as markets ease over Brexit concerns.
If predictions go as expected, and Parliament have the final say on Brexit terms, the Pound could begin to creep up further against the Euro, and with all of the political uncertainty in the form of European elections next year, further dents in the Euro’s armor could present itself quite sporadically.
In light of recent events, the Pound could well come out on top next year, helped in some part by European neighbours.