The Euro Pound (EUR GBP) exchange rate tumbled yesterday on the eve of the UK general election as investors began to price in a victory for the Conservatives.
Pound (GBP) at Weekly High but Can it Hold?
The Pound jumped to a new weekly high against the Euro this morning, building off Wednesday’s gains to push slightly higher as the UK goes to the polls to vote for its next government.
The current consensus amongst analysts is that the Conservatives will claim victory and will likely pick up a few extra seats in Parliament.
This follows weeks of uncertainty over the eventual outcome, with conflicting polls suggesting that the result could be anywhere from a landslide victory for the Tories to a hung Parliament in which Theresa May would be forced to govern with a minority government.
With Brexit negotiations set to formally begin by the end of the month, the outcome of the election has caused investors to become increasingly skittish as they feared that a hung parliament would weaken the government’s position in talks with the EU.
While Sterling sentiment surged yesterday as almost all of the most recent polling data pointed to a Tory majority, the Pound has been a little more subdued in trading today as investors avoid rushing to conclusions as they did during last year’s EU referendum.
Jasslyn Yeo, market strategist at JP Morgan said;
‘Markets appear to be pricing in a Conservative Party majority victory. However, we still see much uncertainty surrounding the UK election, where a higher turnout vote of young people could potentially turn the tables on investors.’
ECB Meeting Overshadows Uptick in Eurozone GDP
The Euro’s attempts to advance this morning have been tapered somewhat today in the knowledge that the European Central Bank (ECB) will hold its latest monetary policy meeting later this afternoon.
The single currency struggled to find any gains this morning despite an unexpected rise in today’s Eurozone’s final GDP estimate for the first quarter, which showed that the Eurozone economy grew 0.6% at the start of the year, beating forecasts of 0.5% growth.
Investors remained unperturbed however as despite the rise in GDP and a string of other upbeat data from the Eurozone in recent months the ECB is still expected indicate that it will leave its aggressive stimulus package in place for at least the remainder of 2017.
EUR GBP Forecast: Extent of Conservative Majority to Dictate Strength in Pound Tomorrow
Should the Tories claim victory in today’s elections most analysts predict, movement in the EUR GBP exchange rate is likely to be driven by the extent of the Conservative majority, with the Pound still likely to soften if Theresa May fails to increase her number of seats by any significant amount.
Outside of the ECB rate decision the Euro may retreat on Friday following the release of the Germany’s latest Trade Balance figures, with some analysts forecasting the trade surplus is likely to have tumbled in April, possibly indicating a weaker second quarter for the German economy.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.86 and the GBP EUR exchange rate was trending around 1.15.