Euro to Pound Exchange Rate Steady as UK Election Jitters Weigh on Sterling Outlook
After a relatively solid performance for the Pound (GBP) on the back of UK election hopes last week, market optimism towards the upcoming election has cooled and the Euro to Pound Sterling (EUR/GBP) exchange rate is edging higher.
Last week saw EUR/GBP trending lower for most of the week after opening the week at the level of 0.8638.
On Friday, EUR/GBP briefly touched on a weekly low of 0.8600 amid election hopes, but then currently quickly recovered to the level of 0.8631 before markets closed for the week.
EUR/GBP has continued to trend with an upside bias since markets opened today, but its movement has been narrow. At the time of writing, EUR/GBP is trending near the level of 0.8639.
Euro (EUR) Exchange Rate Outlook Limited by Trade Jitters as Eurozone Data Edges Higher
The latest Eurozone data has continued to indicate that the bloc’s factory sectors remain trapped in slowdown, with signs pointing to lasting recession in Germany, the Eurozone’s biggest economy.
However, investors were slightly pleasantly surprised by today’s data regardless, as it has come in higher than forecast in some of the Eurozone’s biggest economies.
French and German manufacturing PMIs both beat forecasts, coming in at 50.7 and 42.1 respectively. As a result, the overall Eurozone manufacturing PMI printed at 45.9 rather than the expected 45.7.
According to Phil Smith, Principal Economist at IHS Markit, while Germany’s factory sector is suffering a significant slump there may be signs of hope in the data:
‘It remains to be seen if the downturn in the German manufacturing has finally reached a nadir – much of course depends on developments in global trade, with the US set to decide next week whether to impose new tariffs on automotive imports from the EU.’
Concerns about US-EU tariffs and the US-China trade war have prevented the Euro from climbing much higher today though, as these trade jitters are a large part of the Eurozone’s recently poor factory performance.
Pound (GBP) Exchange Rates Limited amid Uncertain Outlook for UK Elections
Following fairly sturdy performance last week, the Pound was weaker today as uncertainty over the outcome of next month’s UK General Election started to weigh.
Sterling briefly strengthened last week on hopes that the ruling Conservative Party would win and pass its relatively soft Brexit plans, but analysts believe there are too many uncertainties in the outlook for the Pound to sustain gains.
If another UK party performed well or won the election, it would worsen the chances of a hung parliament, or the possibility that Brexit will need to be renegotiated again.
According to Francesco Pesole and Petr Krpata, FX Strategists at ING, Sterling could weaken again if a hung parliament is perceived as more likely:
‘The dynamics are reflecting the sharp decline in the perceived odds of a hard Brexit and the subsequent weaker catalysts for a possible GBP decline,
The possible changes in polls that would indicate a higher probability of a hung parliament would likely lead to some renewed build-up of Sterling shorts,’
Euro to Pound (EUR/GBP) Exchange Rate Investors Await Key Ecostats
The Pound outlook is unlikely to change much in the coming week, as even if tomorrow’s UK services PMI or Thursday’s Bank of England (BoE) news surprises investors, the outlook still highly depends on next month’s election.
As a result, election developments such as campaigning and polls are most likely to drive Pound movement, and uncertainty means that movement could be volatile or limited.
With Sterling movement likely to be limited on election jitters, EUR/GBP exchange rate movement is more likely to be driven by Eurozone data this week.
Wednesday will see the publication of the Eurozone’s final October services and composite PMIs. Following today’s manufacturing data, if these beat projections as well then the Eurozone economic outlook could improve slightly, boosting the Euro.
Of course, upcoming German factory data could prove highly influential as well. German factory orders on Wednesday and industrial production on Thursday could also influence the Euro to Pound (EUR/GBP) exchange rate.