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Pound Euro Exchange Rate Fails to Benefit from UK Manufacturing News amid Election Jitters

  • Pound Euro Exchange Rate Near 1.14 – Unable to sustain recovery attempts
  • UK Manufacturing Impresses on Thursday – But Pound remains weak
  • GBP Forecast: UK Election Next Thursday – UK services PMI may also influence Pound
  • EUR Forecast: Eurozone Data Due Tuesday – Sterling likely to drive GBP EUR however

A number of polls that continue to show a strong Conservative lead over the Labour party have been unable to help the Pound Euro exchange rate recover from this week’s lows. With under a week until the UK general election, investors are increasingly anxious.

GBP EUR began this week trading at the level of 1.1450. Despite recovery attempts on Monday and another small one on Wednesday evening, the pair remains close to the week’s opening level. GBP EUR briefly hit a two-month-low of 1.1426 on Thursday morning.

Pound (GBP) Fails to Benefit from Solid Manufacturing Stats

Thursday saw yet more mixed movement from the Pound. With under a week to go until the UK public heads to the polls in the 2017 general election, Sterling investors are anxious and the British currency is volatile.

Thursday saw the publication of Markit’s UK manufacturing PMI from May, which beat expectations. It was projected to drop from 57.3 to 56.5 but only slipped to 56.7. This data was unable to support the Pound significantly however.

The day’s other economic news revealed that Britain had been the slowest growing G7 economy of Q1 2017. UK and Italy were previously tied with 0.2% growth in Q1, but fresh revisions saw Italian economic growth actually coming in at 0.4%, leaving Britain with the short stick this time.

On top of this, the Pound was of course weighed on by the latest UK general election polls. Following YouGov’s controversial new seat-focused methodology earlier this week, investors have been speculating that a ‘hung parliament’ may be possible.

While most polls indicate UK Prime Minister Theresa May’s Conservative party still has a strong lead over Labour, more polls are beginning to show that the race is tighter than previously expected.

Investors hate uncertainty, especially uncertainty that’s only getting worse. While a pro single-market Labour government may be good for the Pound in the long run, uncertainty of what will happen next will keep traders anxious until the election result becomes clear.

Euro (EUR) Firm Following Solid Data

While there was nothing hugely influential about the Eurozone’s Thursday data, it was solid enough for the shared currency to hold most of its recent gains against the Pound.

Thursday saw the publication of the Eurozone’s final May manufacturing PMI from Markit. Manufacturing data from Ireland, Spain and Germany beat expectations. Germany’s manufacturing result was particularly impressive at 59.5.

While some manufacturing data from the bloc failed to meet expectations, like French and Italian results, the bloc’s overall manufacturing figure came in at a solid 57 as expected.

Italy’s Q1 Gross Domestic Product (GDP) data was revised higher to 0.4% quarter-on-quarter. The yearly growth rate, expected to slow to 0.8%, instead printed at a solid 1.2%.

This week’s other Eurozone data has been generally optimistic too. Germany’s May unemployment rate hit its lowest on record since the German reunification while the Eurozone’s unemployment rate unexpectedly improved to 9.3% in April.

Pound Euro Exchange Rate Forecast: Sterling Volatility Likely in Coming Week

After weeks of analysts assuming the Conservative party would easily win a big majority in the UK election, things have suddenly tightened with now just under a week before UK citizens head to the polls.

PMIs are typically relatively influential for Pound trade, but Friday’s construction PMIs are likely to take a backseat to any polling developments.

As always, if the Conservative party extends its lead in election polling, the Pound is likely to recover. A tighter race and the possibility of a ‘hung parliament’, on the other hand, will leave Sterling weaker as market uncertainty rises.

Next week will obviously be a big one for GBP EUR with the UK 2017 general election taking place on Thursday. That’s not all however, as Britain’s key May services PMI from Markit will be published on Monday.

Over in the Eurozone, next Tuesday sees the publication of the bloc’s final May services and composite PMIs from Markit, as well as April retail sales results for the bloc.

Wednesday and Thursday’s sessions will also be vital. An updated Q1 Eurozone Gross Domestic Product (GDP) projection will be published on Wednesday, followed by the European Central Bank’s (ECB) June policy decision on Thursday.

Overall, UK general election polling, key Eurozone data and the ECB meeting are the biggest movement potential for the Pound Euro exchange rate over the next week.