The Euro Pound (EUR GBP) exchange rate softened in trade yesterday as recent polling data suggested that the Conservative party it set to retain a majority in Parliament.
Pound (GBP) Bolstered by Polling Data
The Pound was able to strengthen in trade on Monday as markets focused on recent polling data that suggested that the Tory party may increase their number of seats in Thursday’s election.
The ICM poll released yesterday suggests that Theresa May enjoys an 11-point lead over Jeremey Corbyn, conflicting with the most recent YouGov poll that places the Tories only 4-points ahead and forecasting that the vote will lead to a hung parliament.
However some economists have already begun to look past the election to Brexit, where negotiations are set to officially get underway by the end of the month.
While many investors believe that a win for the Conservatives on Thursday will help to strengthen the UK government in Brexit negotiations, some observers are worried that talks are still likely to be turbulent.
Analysts at US Investment Bank Morgan Stanley are predicting that both sides are set to clash over a number of issues, namely a reported €100bn divorce bill and the rights of EU citizens living in the UK.
Experts at the bank believe that these clashes are likely to prevent any real constructive talks from taking place and that these issues will need to be resolved quickly if the UK is to salvage any meaningful agreement before the end of the two year negotiation period.
This lead the bank to slash its long-term forecasts for the Pound on Sunday explaining that;
‘The bull case (for sterling) has become less convincing, with the economy now showing signs of weakness. For sterling to do better, we need to see Brexit negotiations turning constructive, allowing markets to assume the British economy avoiding a cliff-edge Brexit.’
Euro (EUR) Softens as Eurozone Retail Sales Slow
The Euro found its attempts to recover hindered this morning following a slightly disappointing retail sales report from the Eurozone.
According to data published by Eurostat, retail sales only rose by 0.1% in April, slightly behind market forecasts of 0.2% growth.
However year-on-year growth was slightly more upbeat as revisions made to earlier months saw sales hold at 2.5% for the 2016/17 financial year, beating expectations that they would slump to 2.3%.
While investors choose to focus on the monthly figures the uptick yearly sales is yet another sign of the Eurozone’s recent economic strength, with the bloc outperforming every other major economy for the first half of 2017 and indicating that it is well on the road to recovery after the 2012 crisis.
EUR GBP Forecast: Further Pound Volatility ahead of UK Election?
The direction of the EUR GBP exchange rate over the next couple of days is likely to be closely tied to market outlook for the UK’s general election on Thursday, with any suggestion that the vote will lead to a smaller majority for the Conservatives or even to a hung parliament likely to cause the Pound to tumble.
Meanwhile the European Central Bank (ECB) will meet on Thursday, which may pressure the Euro as economists predict that the Bank will signal that interest rates are still likely to remain at 0% for the foreseeable future, despite the recent uptick in the Eurozone economy.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.8710 and the GBP EUR exchange rate was trending around 1.1479.