The pound euro exchange rate fell as UK markets were hit by news that the cross-party talks between the Conservatives and the Labour party were over without a deal. Labour leader Jeremy Corbyn confirmed the news in a letter to the Prime Minister today. Labour’s Hilary Benn commented: “There are only two ways out of the Brexit crisis that we’ve got – either Parliament agrees a deal or we go back to the British people and ask them to make the choice. “I think this brings the prospect of a confirmatory referendum closer, although there’s not yet a majority for that in Parliament.”
The pound is also struggling as Brexit uncertainty weighs on business and investor confidence, with the CBI Chief, Carolyn Fairbairn, saying that “every day without a deal is corrosive [to the British economy]”.
Meanwhile, traders are focusing on Mrs May’s leadership, which was challenged twice yesterday by the 1922 Committee and the former Foreign Secretary, Boris Johnson, who said he would go for the leadership position.
With the government on shaky ground ahead of the EU elections, this has left many pound investors feeling jittery.
The euro is benefiting to an extent from its safe-haven status, however, as the US-China trade tensions continue to have investors fleeing to the US dollar, which shares an inverse relationship with the euro.
At the same time, the euro is finding itself under pressure due to reports that Italy’s coalition government may split.
This would allow the Deputy Prime Minister Matteo Salvini’s League party to break away from the Five Star Movement and retain complete control.
The populist League has surged in the polls recently, and the EU fears that if it were to have full control of Italy’s economy it would press ahead with its spending plans in contravention of EC budget rules.
Looking ahead, the pound is likely to continue to weaken against the euro as Brexit uncertainty drags on into next week.