Pound To Euro Exchange Rate Rises After Brexit Debate News From Theresa May

But it may just be a 'dead cat bounce'.

12/10/2016 12:32

The pound has finally recovered some of its losses and bounced upwards after the Government allowed Tory MPs to back a motion for a debate on the Brexit process.

By mid-morning on Wednesday the pound was up 1.1% against the dollar at $1.2262, and 1.3% higher against the euro at €1.1115, the first rise in five days, the BBC reported.

The pound has made a slight recovery after the Government allowed Tory MPs to back a motion for a debate on the Brexit process

It was a turnaround as the pound has plummeted to a three-decade low since Theresa May announced in early October that the process to leave the European Union will start by the end of March 2016.

It also fell dramatically in what was dubbed a ‘flash crash’ after a “rogue algorithm” picked up negative Brexit headlines and prompted traders to feverishly sell Sterling.

Many airports are now offering less than €1 to the pound. Fears of a ‘hard Brexit’ where the UK would exit the single market have also devalued the pound. 

But after the Government agreed to a “full and transparent debate” in the House of Commons about its plan to leave the EU, the pound has begun to claw back some of the fall. 

May has now tabled an amendment which will allow Tories to back the text of Labour’s motion for MPs to be given proper scrutiny of the Brexit strategy before Article 50 is triggered.

It is being debated today but May added caveats insisting that the EU referendum result must be respected and that the Government’s negotiating strategy should not be undermined.

Connor Campbell, financial analyst at SpreadE, told the BBC “It’s not a formal vote on the issue, but it’s better than nothing, and has momentarily put to bed the fears of a hard exit from the EU.”

“The pound may have, potentially, just about found its bottom this Wednesday morning,” he added. 

Peter Dazeley via Getty Images
The pound has risen for the first time in five days

However, the pound “trimmed its gains” and fell a little again after May stressed there would be no actual vote on triggering Article 50, The Telegraph reported.

Neil Wilson, of ETX Capital, told the Telegraph that if traders think the mood is turning “bullish” for the pound they are “mistaken”. 

“The bears are still very much in control and this relief rally looks like a dead cat bounce. It could just be a short pause before sterling takes another leg lower towards $1.20. Already this morning the pound has given up some overnight gains as traders return to their desks in London,” he said.

“Moreover it looks like May is not giving much away over how Brexit will be handled, which means we can expect continued volatility in sterling as markets second guess the politics.

“The data is now secondary to the politics and general sentiment, although upbeat figures around inflation and output would offer some temporary relief for the pound.”

After the ‘flash crash’ one expert said the foreign exchange market bears an “uncanny resemblance to the five stages of grief” after the Brexit vote.

David Bloom, chief currencies analyst at HSBC said: “First, following the Brexit vote came the denial – theories circulated whether a second referendum would have to take place. Second was anger – claims the vote was unfair.

“Third was the bargaining – arguments maybe it wouldn’t be that bad, what if the UK followed the Norwegian or Switzerland model. Now the fourth a gloom is prevailing over sterling.”

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