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Euro to Pound Sterling (EUR/GBP) Exchange Rate Rallies Beyond a 1-Week High on UK Election Uncertainty


The Euro to Pound Sterling (EUR/GBP) exchange rate strengthened to its highest level in a week on Tuesday as Investor worries over the UK general election weighed heavily on the British currency.

The Euro to Pound Sterling (EUR/GBP) exchange rate climbed to a session high of 0.7250 on Wednesday

A survey carried out by Bloomberg showed that 48% of economists believe that political uncertainty will prove to be the biggest danger to the UK’s economic recovery. The number rose from the 43% figure recorded last month.

Who will win the election remains unclear with polls suggesting that neither the Labour nor Conservative Parties will win a majority. During the last election the global financial crisis was at its peak and caused the Tories and Lib Dems to form a coalition in just six days, this time however with the economy performing well analysts are forecasting that negotiations this time around could take weeks.

UK Independence Party (UKIP), which could hold the balance of power if the Lib Dems are wiped out, has said that it would be willing to back a minority Conservative government if it promises to hold an in/out referendum on European Union membership this year.

Interestingly Prime Minister David Cameron did not rule out the possibility of holding such a vote this year, creating speculation that the PM could be open to a deal with UKIP.

‘The sooner that EU negotiations can get done the better, but frankly the chances of doing that inside 2015 after an election in May are pretty slim,’ Cameron said in a TV interview.

On Monday, the Labour Party ruled out a coalition with the Scottish National Party (SNP).

‘There’s going to be more political uncertainty whatever the outcome. The coalition government may take longer to form, will be less united, and could fall relatively quickly. It is not encouraging for foreign investment,’ said an economist from London based ING Bank.

Eurozone Data Ahead

The Euro could make further gains as the session progresses if the latest data out of the single currency bloc comes in positively. Core inflation in the region is forecast to remain unchanged at 0.6% but inflation on a monthly basis is expected to improve by rising by 0.6%.

On an annual basis, inflation is expected to slow its declines and fall by -0.3%. Also of interest will be ZEW Economic Sentiment Index data, which will show that sentiment in the single currency bloc improved from a reading of 52.7 to 54.94.