EUR/GBP Exchange Rate Rangebound, Could the Pound Sink on Increasing Labour Favourability?
The Euro Pound (GBP/EUR) exchange rate held steady this morning, with the pairing currently trading around €1.168 after the UK’s public sector net borrowing figure for October rose to £10,509 billion, its largest budget deficit in five years.
Andrew Wishart, UK Economist at Capital Economics, said that the government’s spending reflects potential preparations for a no-deal Brexit for the previous deadline on October 31. Mr Wishart commented:
‘The worst October for the public finances for five years won’t prevent whoever wins the election embarking on a fiscal splurge. Borrowing appears to have been higher than expected due to Brexit preparations, and leaves the budget deficit on track to rise for the first time in a decade this year.’
However, Pound (GBP) traders have remained cautious today with the Labour Party set to release its election manifesto. Investors will be paying close attention to how it could potentially effect the British economy.
Any signs that the Labour Party could increase its favourability in the polls ahead of the election would weaken the Pound, with markets generally being more supportive of the Tories due to their more business-friendly approach and decisive attitude to Brexit.
EUR/GBP Exchange Rate Steady, Markets Brace for ECB Monetary Policy Meeting Accounts
The Euro (EUR) failed to gain on the Pound (GBP) this morning as markets await the publication of the European Central Bank’s monetary policy meeting accounts.
While ECB’s minutes are not expected to contain anything revelatory, they could weaken the single currency if the bank shows any signs of stepping up its stimulus package in the near-term.
After Germany narrowly escaped a technical recession, concerns are rising that the Eurozone’s powerhouse economy will refrain from spending and stimulating the bloc’s economy, potentially forcing the ECB to add more stimulus.
Laurence Boone, Chief Economist at the Organisation for Economic Cooperation and Development (OECD), commented:
‘It would be a policy mistake to consider these shifts as temporary factors that can be addressed with monetary or fiscal policy: they are structural.’
EUR/GBP Outlook: Could Sterling Rise on Improving UK Services PMI?
Euro investors are remaining cautious ahead of tomorrows’ speech from Christine Lagarde, the President of the ECB, who may express her view on future monetary policy for the Eurozone for the first time since she’s become the bank’s premier.
Tomorrow will also see the release of November’s flash German Markit Manufacturing PMI, which is expected to remain firmly in contraction territory at 42.9. As a result, we could see the EUR/GBP exchange rate sink on heightened concern for the Eurozone’s largest economy.
Pound traders will be paying close attention to tomorrow’s publication of the flash UK Markit Services PMI figure for November, with any signs of improvement likely boosting the Pound as its largest sector grows.
UK political developments will continue to remain in focus. Any signs of the Labour Party increasing its favourability rating in the polls, however, would see the GBP/EUR ease.