The Euro Pound (EUR GBP) exchange rate surged this morning as the UK election resulted in a hung parliament.
Pound (GBP) Nosedives as Theresa May Fails to Secure Majority
The Pound plummeted by nearly 2% against the Euro overnight on Thursday as it became clear that the election vote resulted in a hung parliament.
A number of polls in the run up to the election had suggested that such an outcome was possible, however most final projections had forecast that the Conservatives would manage to hold onto a slight majority.
The hung parliament result was particularly damaging for the Pound as it casts a great deal of uncertainty over Britain’s political landscape, with parties likely to meet behind closed doors to begin discuss the possibility of a coalition and speculation that Theresa May could be ousted as leader after the misguided call for a snap election.
Viktor Nossek, director of research at wealth manager WisdomTree said;
‘The pound has tumbled overnight, and this could be just the start, with volatility likely to remain elevated. Indeed, as the ramifications of this vote become clearer, the falls against the US dollar and other currencies could become more pronounced.’
‘Looking across markets in general, uncertainty will reign as parties try to form a government, so expect an increase in volatility in the near term.’
The outcome is also likely to frustrate the upcoming Brexit negotiations, with no clear majority government to lead talks, markets fear that the UK may have to make greater compromises.
Disappointing German Trade Figures Weighs on Euro (EUR)
The Euro’s gains were tempered somewhat this morning by the release of Germany’s latest Trade Balance which showed a sharp drop in nation’s trade surplus.
According to data released by German statistical office Destatis Germany’s trade surplus slipped from €25.3bn to €18.1bn in April, a far larger fall that the €0.2bn drop that analysts had predicted.
The figures combined with a larger than expect contraction in Factory orders over the same period appears to show that the Eurozone’s largest economy has begun to slow in the second quarter, with the explosive growth seen at the start of the year petering out.
The slowdown is also likely to worry markets after yesterday’s European Central Bank (ECB) policy meeting in which the bank downgraded its inflation forecasts as an indications that growth has begun to slip could cause the ECB to take an even more dovish approach to monetary policy.
EUR GBP Forecast: More Sterling Volatility Ahead as
The EUR GBP exchange rate is likely to continue to strengthen over the coming days as markets continue to shun the Pound as political uncertainty and fears over the upcoming Brexit negotiations weighs on investor confidence.
Meanwhile the Euro is likely to gain at the start of next week as economist predict that the latest Eurozone economic sentiment survey will show an uptick in confidence, following a string of upbeat data released from the bloc.
Current Interbank Exchange Rates
At the time of writing the EUR GBP exchange rate was trending around 0.87 and the GBP EUR exchange rate was trending around 1.13.