The Euro Pound (EUR GBP) exchange rate rocketed overnight on Thursday as the Conservative lead over labour narrowed even further.
The first opinion poll published by YouGov since the terror attack in Manchester on Monday night suggested that Labour are now only 5 points behind the Conservatives at 38% to 43%.
This is a major turnaround from the start of the election race in April, when polls suggested that the Tories enjoyed a 24 point lead over their nearest rivals, causing the Pound to rise as analysts predicted a greater majority in parliament would help strengthen the government’s position in Brexit negotiations.
The fall in Tory sentiment appears to have been largely prompted by the publishing of the Conservative manifesto last week, which included a controversial change to social care for the elderly. Despite a U-turn earlier this week, the policy proposal has angered many of the party’s core voters.
The tightening of the race has cast further uncertainty over the UK’s split from the EU, with markets fearing that the Brexit process could become even messier if Theresa May doesn’t gain a majority. The possibility of a hung parliament just weeks before Brexit negotiations are set to officially begin on the 18th of June are causing even more concern.
Nomura strategist Jordan Rochester said;
‘Sterling is likely to continue to be under pressure now until the election is out of the way, if polling continues to indicate it’s a tighter race.’
‘For the market the worst outcome is if we have further uncertainty with the chances of a hung parliament.’
Meanwhile the Euro continues to see strong demand after a run of upbeat Eurozone data and a lull in European political concerns have made the single currency more attractive to investors and made EUR the best performing G10 currency in the first half of the year.
Markets have also rushed to the Euro in recent days following the release of cautious minutes from the Federal Reserve earlier this week that suggested that the Fed may slow the pace of rate hikes this year following a string of poor data from the US.
Looking ahead, the EUR GBP exchange rate is likely to extend its gains on Tuesday following the release of Germany’s latest CPI data, with inflation expected to have risen once again in May.
The Euro may also be strengthened by an expected uptick in Eurozone Business Confidence figures on Tuesday as recent upbeat economic data points to further growth in the bloc.
Meanwhile, the Pound is likely to get off to a slow start next week as thin trading volumes over the bank holiday weekend and an expected fall in UK Consumer Confidence this month will likely cause Sterling to soften.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.8718 and the GBP EUR exchange rate was trending around 1.1471.