- Pound Euro Exchange Rate Touches 1.13 – But pair mostly trends near 1.14
- Euro Sold Ahead of ECB Meeting – Fears that ECB will cut Eurozone inflation forecast
- ECB Meeting Disappoints – European Central Bank cuts inflation forecast
- GBP Forecast: Hung Parliament Outcomes to Affect Pound – Negotiations could be ongoing
Uncertainty of Hung Parliament Hits Pound Euro to 1.13
While the Pound Euro exchange rate spent much of Friday testing levels of 1.14, the pair trended near 1.13 lows until the end of the day as investors reeled from news that Britain’s general election had ended in a hung parliament.
UK Prime Minister Theresa May has indicated she intends to remain PM and lead a minority Conservative government through Brexit negotiations, but speculation remains that this may not last.
Financial markets hate uncertainty and so many investors have sold the Pound in favour of assets with a clearer outlook. If Theresa May steps down from her role or if Brexit negotiations are negatively impacted, the Pound outlook will worsen further.
On Monday the Pound will react to any developments from over the weekend and will of course continue to react to new developments throughout the week.
Next week’s key data includes the Bank of England’s (BoE) June monetary policy decision and the May inflation data from both Britain and the Eurozone, which could also influence GBP EUR movement.
[Previously updated 12:55 BST 09/06/2017]
Another election, another miss for investors and betting markets. Britain’s 2017 general election ended in a ‘hung parliament’ which was a big shock for betters and financial markets.
On Thursday evening when exit poll projected a ‘hung parliament’ outcome, the Pound plummeted. As a hung parliament became clearer on Friday morning, GBP EUR touched on a new 2017 low of 1.1307.
A hung parliament is Pound negative because no matter which party forms a government, it will be weaker than a majority government and will see additional obstacles and opposition when it comes to passing things like economic legislation.
This is particularly important for Britain as the Brexit process begun earlier this year. Analysts speculate Brexit negotiations could be much harder with a weaker government in power.
GBP EUR could recover slightly if Conservative leader Theresa May is able to form a minority or coalition government, but speculation remains that May could be ousted. If May lost her position as Conservative leader, uncertainty would rise further and Sterling would fall.
[Previously updated 16:50 BST 08/06/2017]
Pound Euro Exchange Rate Holds Highs Ahead of UK Election Results
As was leaked to Bloomberg on Wednesday, the European Central Bank’s inflation forecasts for 2017 through 2019 were cut – largely due to drops in oil prices.
The Euro failed to recover from its Wednesday drops as a result, despite the ECB indicating that it was no longer considering even looser monetary policy.
GBP EUR held near its weekly highs of above 1.15, but that could change on Thursday night and Friday morning as investors react to the results of Britain’s general election.
If the Conservatives win a big majority as analysts forecast, the Pound is likely to strengthen. However, in the event of a ‘hung parliament’, uncertainty will soar and Sterling will fall.
[Previously updated 12:55 BST 08/06/2017]
Investors continue to be confident that the Conservatives will win a majority in Thursday’s UK general election as British citizens head to the polls.
The final opinion polls were as mixed as ever, with some showing the Tories have extended their lead with others showing the lead thinning. Regardless, the Pound Euro exchange rate is trending near this week’s highs.
This is largely due to concerns that the European Central Bank will cut its inflation forecasts.
In the ECB’s policy decision, the bank left monetary policy frozen at its loosest levels as expected. Traders will now look ahead to the afternoon’s press conference with ECB President Mario Draghi. This could affect GBP EUR exchange rates slightly before the results of the UK election begin to come in.
[Published 07:00 BST 08/06/2017]
Despite concerns about Thursday’s UK general election, the Pound Euro exchange rate advanced during Wednesday’s European session. This was due to reports that Thursday’s European Central Bank (ECB) meeting could see the bank cutting Eurozone inflation forecasts.
GBP EUR began this week trading at the level of 1.1425. While the pair struggled to reach 1.15 earlier in the week, it briefly broke past this level on Wednesday for the first time since last week.
Pound (GBP) Benefits from UK Election Bets
Election day is finally upon us and markets continue to be generally confident that the Conservative party will win the majority of seats in parliament.
This expectation has supported Pound trade this week. Analysts believe that if the Conservative party wins a majority, Brexit negotiations will go more smoothly over the next two years.
Most polls indicate the Conservative party will win against the Labour party, with some still projecting a big Conservative lead of 11 points or more. Betting markets also have the best odds on a Conservative majority being the most likely outcome.
However, other possibilities remain. This has limited the Pound’s strength since Monday.
Most polls indicate that the Conservatives’ lead against Labour has narrowed significantly in recent weeks. Some polls have the Conservatives ahead by as little as one point.
If these tighter polls turn out to be accurate, the election could end without any party winning a majority. This would lead to a ‘hung parliament’, a scenario where either a minority government could run the nation or a coalition between different parties could be formed.
According to Neil Wilson, analyst from ETX Capital;
‘If it’s a hung parliament, the Pound is likely to plunge on increased political risk and a possible delay to Brexit negotiations.’
A ‘hung parliament’ wouldn’t necessarily be all bad for the long-term Pound outlook however, as a coalition government could actually make a softer Brexit more likely.
Euro (EUR) Drops on European Central Bank (ECB) Inflation Mutterings
The Euro was sold off during Wednesday’s European session as investors became concerned about this week’s European Central Bank (ECB) meeting, following a report from Bloomberg.
According to Bloomberg’s report, the ECB could cut its inflation forecast during this week’s monetary policy decision due to weaker energy prices. The ECB’s current official projections for 2017, ‘18 and ‘19 are 1.7%, 1.6% and 1.7% respectively.
The Euro plunged in reaction to the report and investors now expect a less optimistic policy meeting from the ECB on Thursday.
Investors had been hoping that as the Eurozone economy improves and inflation slowly rises, the ECB may be pressured into moving away from ultra-loose monetary policy.
However, if the report is accurate the Euro outlook will be notably lower. In this scenario the ECB would be likely to keep monetary policy loose for the foreseeable future and the bank’s aggressive quantitative easing (QE) package would be kept in place until its scheduled end date.
Pound Euro Forecast: UK Election Result in Focus
The Euro could see a relief rally on Thursday if the ECB doesn’t cut inflation forecasts as feared. On the other hand if the ECB does indeed cut its inflation outlook the Pound Euro exchange rate is likely to hold most of this week’s gains.
The biggest focus of the day will definitely be the UK 2017 general election however. The results could cause a major shift in GBP EUR direction on Friday.
The UK public will be voting throughout the day and the results will be called throughout the night. Exit polls will come in at around 10pm BST and are likely to offer markets some early indication of how each party performed.
Depending on the majority, an official projection of the final results could come in early on Friday morning. In the event of a tight race the final results may not be known until later in the morning or even the early afternoon.
Most analysts, as well as betting markets, expect a Conservative majority. If the Conservatives win over 326 seats the Pound is likely to see a relief rally as investors anticipate smoother Brexit negotiations. The bigger the majority, the better the Pound is likely to do.
A ‘hung parliament’ is still possible though. If no party wins enough seats to form a majority government, Sterling will plummet as investors fear an extended period of negotiation, ending in a potentially weaker UK government that may fumble in the Brexit process.