The Pound has bobbed up and down against the Euro today, in the fast-moving events after news came of a hung parliament. Sterling managed a maximum recovery of 1.1428, but has since slipped due to continued trader uncertainty.
Earlier GBP losses were temporarily negated by the news that the Conservatives would seek an informal agreement with the Democratic Unionist Party (DUP). Adding Conservative seats to the DUP’s ten, this would (just) grant enough combined seats to form a government.
The situation remains subject to extreme change, however, as by the close of Friday, a deal between the two parties had not actually been reached. If a public agreement does come in the near-term, then the Pound could rally as it would mean an end to the current cycle of mass uncertainty after a forecast-defying general election.
(First published 09:45, June 9th, 2017)
The Pound has dropped sharply against the Euro over the UK general election result, falling to its worst exchange rate since November 2016. The Pound fell from 1.1552 to 1.1359 when exit polls came out; since then, it has staged a recovery, but remains historically weak.
- GBP EUR exchange rate slumps to 1.1383 – EUR GBP surges to 0.8784
- Pound shattered by shock election result – Conservatives forced into coalition talks after losing seats
- Euro advances despite German trade surplus slide – Traders remain unsettled by ECB dovishness
- Pound crash predicted if Theresa May resigns – Greek inflation stats could shift Euro demand
In the aftermath of the UK general election, the Pound remains in a state of high volatility on what could be a day of shock political announcements. Today’s GBP EUR losses have been dramatic, but may just be the tip of the iceberg.
Pound Traders Panic on Shock Hung Parliament Result
The Pound’s heavy losses today come as the Conservatives scramble to limit the damage from the election result, which has seen the Tories lose their 2015 majority.
The Conservatives are still the largest party at over 300 seats, but with under 326 regardless of the remaining declarations, they will be unable to form a solo government.
It is largely expected that the Conservatives will try and make a majority with the Democratic Unionist Party (DUP), but questions still remain about Prime Minister Theresa May’s fate.
May called the election to strengthen the Conservatives and although they may be ruling in the future, her plans have soundly backfired. While the Conservatives could remain in power via backroom deals, May is expected to face extreme opposition from her own party if she stays on.
On the other side of this, however, her resignation would spark another Conservative leadership debate. With Brexit negotiations due to start on June 19th, it is unlikely that a new PM could be chosen in time for negotiations to start.
According to British Chambers of Commerce Director General Adam Marshall, decisive agreements are needed in order to maintain stability;
‘The formation of a workable administration that can give voters and businesses confidence around economic management must be the immediate priority. Whilst companies have for many months done their best to screen out political noise in order to focus on their own operations, this result will prove much harder for UK businesses to ignore. The swift formation of a functioning government is essential to business confidence and our wider economic prospects’.
Euro Pound Exchange Rate Dips but Remains Favourable Overall
With the Pound battered by today’s shock election result, the Euro has remained stable against it.
The 0.8795 EUR GBP exchange rate remains the best seen in 7 months, with poor Eurozone data failing to completely reverse earlier Euro gains.
Today’s limited Eurozone data has seen the German trade surplus for April slide from 25.3bn to 18.1bn. Elsewhere, traders also remain wary about the European Central Bank (ECB), after a net neutral policy meeting on Thursday.
GBP EUR Forecast: High GBP Volatility ahead as Party Leaders Work out Next Government
The Pound’s troubles may not be over today, as there could still be shocks and surprises even after all constituencies are declared.
If Theresa May resigns, as some predict, then the Pound could hit fresh lows on the wave of uncertainty that this would generate. There isn’t much that could boost Sterling today, as instabilities could continue over the weekend and into next week if a functioning government cannot be formed.
The Euro could be weakened in the near-term, if Greek inflation rate figures show a sharp rise. Greek real incomes have been depleted by the ongoing debt crisis, so higher prices will only raise more concerns about a national wage squeeze.
Current Interbank GBP EUR Exchange Rates
At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1383 and the Euro to Pound (EUR GBP) exchange rate was trading at 0.8784.