Leader of the House of Commons, Jacob Rees-Mogg exacerbated fears for a no-deal outcome by saying: “We do not know what the European Union will do … and you know that the request for an extension is not the prime minister’s request. It is the request of the Benn Act. Her Majesty’s government does not want an extension and it is making every preparation to leave on the 31 October.”
However, with UK markets expecting a formal EU decision before Friday and GBP investors sitting on their hands until then, the GBP/EUR exchange rate remained effectively rudderless.
Meanwhile, the euro was on the back foot following the release of this morning’s flash German Manufacturing PMI for October, which remained firmly mired in contraction territory at 41.9.
Phil Smith, Principal Economist at HIS Markit, was downbeat in his assessment: “Hopes of a return to growth in Germany in the final quarter have been somewhat dashed by the October flash PMI numbers, which show business activity in the Eurozone’s largest economy contracting further and underlying demand continuing to soften.”
A counterweight to Germany’s economic deterioration came with an improvement in French business activity, however, which registered its third-largest growth in 11 months.
Brexit developments will remain front and centre into the weekend.
The pound is likely to decline against the euro if the Conservatives abandon the withdrawal agreement and pursue a general election, or the EU grants a three-month extension, either of which would deepen uncertainty and reduce GBP investor clarity in the short-term.