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Euro Pound Exchange Rate Volatile as UK General Election Nears

  • Euro Pound Exchange Rate Near 0.87 – Holds close to multi-month highs
  • Eurozone Data Impresses – Pound weighed by UK election jitters
  • EUR Forecast: ECB Meets This Week – Could the bank take a hawkish tone?
  • GBP Forecast: General Election on Thursday – ‘Hung parliament’ possibility to weaken Pound

Euro Pound Drops with UK Election Bets in Full Swing

Monday’s UK general election polls were enough to increase market demand for the Pound, despite other polls from the last few days indicating that a number of outcomes were possible depending on which polls turned out to be most accurate.

The day’s UK and Eurozone services PMIs were ultimately brushed over by EUR GBP traders with general election jitters taking focus.

The Euro Pound exchange rate may be influenced by Eurozone retail sales data on Tuesday, but it’s more likely EUR GBP traders will focus on UK election polls.

Despite a wide number of polling methodologies being utilized this year, Sterling investors have been reacting to most of them making the currency more volatile than usual.

This is likely to continue until the election results come in on Friday morning, though volatility will be extended in the event of a ‘hung parliament’.

[Previously updated 12:39 BST 05/06/2017]

After ending last week near its best levels in over half a year, the Euro Pound exchange rate briefly hit a new nine-month-high of 0.8772 when markets opened on Monday morning.

Sterling started the week off poorly as investors reacted to a poll from The Mail on Sunday, indicating that the Labour party was now only one point behind the Conservatives.

However, a different poll published later on Monday by ICM and The Guardian told a different story, giving the Conservatives a strong 11-point lead over Labour.

Sterling gained in reaction to the ICM poll. With mere days to go until the general election, the Pound could continue to fluctuate as investors react to each poll regardless of widely differing results.

[Published 07:00 BST 04/06/2017]

After some brief dips throughout the week, the Euro Pound exchange rate ended last week close to the week’s opening levels. Solid Eurozone data as well as rising uncertainty about next week’s UK general election kept the pair strong.

EUR GBP began last week trading at the level of 0.8732. The pair briefly hit a two and a half-month high of 0.8751 later in the week and ended the week close to the level of 0.87.

Euro (EUR) Supported by Slew of Optimistic Eurozone Data

The shared currency has held its ground over the last week, putting on a strong performance due to market perception that the Eurozone economy is increasingly sturdy.

While the bloc’s latest Consumer Price Index (CPI) report indicated that inflation slowed more than expected in May, other data from throughout the week was comparatively impressive.

Thursday’s Eurozone manufacturing PMI for May came in at 57 as expected, improving from 56.7 and recording the bloc’s best month for factory output in over six years. More Eurozone factory jobs were made in May than in any other month in Markit’s 20 years of publishing the print.

The solid manufacturing data for the bloc was partially due to better-than-expected manufacturing results in Spain, Germany and Ireland.

This week’s Eurozone growth data has also beaten expectations. Italy’s final Q1 Gross Domestic Product (GDP) results were twice as good as expected with a 0.4% figure quarter-on-quarter.

Even more surprising was Friday’s final Q1 growth data for Greece. Analysts predicted Greek’s economy would contract for another quarter, but quarter-on-quarter and year-on-year results both unexpectedly came in with 0.4% growth. The previous figures were also revised slightly higher.

With the Eurozone seemingly growing at a better pace than expected, the shared currency was able to easily hold against a jittery Pound.

Pound (GBP) Fails to Hold as Election Jitters Worsen

With under a week until the UK public votes in the 2017 general election, the race between UK Prime Minister Theresa May’s Conservative party and the opposition Labour party is looking tighter than analysts had previously expected

Previously seen to be a ‘one horse race’ and an easy majority win for the Conservatives, a social care mishap has seen the Tories slipping in polls while Jeremy Corbyn’s Labour party makes gains.

While most polls continue to suggest that the Conservative party will win the most seats and most votes, there is speculation that they may not win enough seats to establish a majority government.

In this possible scenario (a ‘hung parliament’) a coalition could be made or the party with the most votes could run a minority government. A minority government would make passing laws more difficult and would certainly be a concern for Brexit negotiations.

This would be Pound negative. The possibility of a ‘hung parliament’ and rising uncertainty were the main reasons for Sterling’s weakness over the last week.

As a result, the Pound was unable to heavily benefit from the week’s better-than-expected UK manufacturing and construction PMIs.

Euro Pound Exchange Rate Forecast: ECB and UK Election Ahead

The coming week will be a big one for the Euro Pound exchange rate. Euro movement is likely to be influenced by the European Central Bank’s (ECB) upcoming meeting while the Pound will of course be influenced by UK general election jitters.

Sterling volatility should be expected up until Thursday the 8th of June, when the election takes place.

As for the potential results, a big Conservative majority would lead to a stronger Pound. A Labour government may also be Pound-positive in the long-term as Jeremy Corbyn has signalled he wants Britain to stay in the single market and keep EU freedom of movement.

On the other hand, a ‘hung parliament’ would be Pound negative and would lead to worsening concerns about Brexit negotiations.

Uncertainty about the outcome is likely to allow EUR GBP to hold its ground somewhat in the coming week, unless Eurozone data and the ECB disappoints.

The Eurozone’s final May services and composite PMIs from Markit will be published on Tuesday. Eurozone retail sales data from April will also be published.

Wednesday will see the publication of the Eurozone’s latest Q1 Gross Domestic Product (GDP) projections, which could improve due to better-than-expected growth data from Italy and Greece.

The ECB is not expected to alter monetary policy in its meeting on Thursday, but any indication from ECB officials that the Eurozone’s economy is increasingly sturdy could bolster market hopes for more hawkish policy in the foreseeable future.

This would boost the Euro Pound exchange rate, but only if the UK general election’s results aren’t great ones for the Pound.