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Pound Sterling to Euro Exchange Rate Forecast: GBP/EUR Expected To Rally this Week As Conservative Election Win Reduces Political Uncertainty

The Pound Sterling to Euro (GBP/EUR) exchange rate is forecast to continue to advance next week, as the markets will continue to digest the implications of the Conservative Party’s surprise election victory.

As the results came in, Sterling broke above the $1.55 mark against the dollar and saw its sharpest rise against the euro for six years, rising by 2% to hit €1.382 against the single currency. Sterling also jumped by 1.75% against the dollar to $1.551 – representing a two-and-a-half month high.

The Pound Sterling to Euro (GBP/EUR) Exchange Rate Hit a Weekly High of 1.3831 on May 8

Next week gets off to a data filled start for the Pound, as on Monday the Bank of England (BoE) will announce its latest quantitative easing and interest rate decisions. Economists are widely forecasting that central bank policy makers will choose to leave its monthly quantitative easing rate at £375 billion and maintain interest rates at the record low level of 0.5%.

Tuesday will see the release of Manufacturing Production and Industrial Production data released. Both figures are expected to show improvement. Monthly industrial production is expected to improve from 0.1% to 0.5%. Yearly manufacturing is forecast to rise from 1.1% to 1.17%. Also due for release in the session will be the latest NIESR GDP third quarter estimate figures.

Wednesday will see the publication of the latest Claimant Count, Unemployment Rate and Average Earnings data. Stronger than expected figures will be a huge boost to the new Conservative government and could reaffirm that British voters made the right choice when it comes to the economy. Also due that day will be a wealth of economic data out of the Eurozone, chief of which will be German GDP and Inflation data.

On Thursday and Friday there is a lack of market moving UK economic data releases.

Despite the uncertainty of the general election out of the way economists will now be focusing on the Conservatives pledge to hold an in-out referendum on the UK’s membership of the European Union. In the long-term, the Pound could soften as economists digest the implications of the result.

‘Many will remember how poorly Sterling performed in early September of last year in the face of a potential Scottish exit from the union and wonder whether the threat of another referendum could similarly weigh on the currency,’ warned Simon Derrick from BNY Mellon.

Investors will now focus on next week’s key meeting between Greece and its European creditors.

If German GDP data disappoints we can expect the Euro to fall, as optimism that the Eurozone is recovering will be dented.

Data out of China and the US could influence the currency pair, as poor data will raise fears that the global economy is slowing.

Also in focus next week, will be Greece. If negotiations break down, we can expect the Euro to fall.