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UK Election Uncertainty Keeps Pressure on Pound to Euro Exchange Rate

  • Pound Euro Rate Near 1.15 – Euro weakness allows GBP EUR to rise
  • UK General Election Polls Mixed – Some show conservative win, others indicate tight race
  • Eurozone Retail Sales Mixed – Euro fails to capitalise
  • GBP Forecast: Volatility Expected – Lack of data this week leaves Pound reacting to polls

European Central Bank Concerns Cause Pound Euro Rise

Bloomberg’s report that the European Central Bank (ECB) is planning to cut its inflation forecasts for the Eurozone weakened the Euro considerably on Wednesday, allowing the Pound Euro exchange rate to rise.

The pair hovered above the key level of 1.15 at multiple points throughout the day, but concerns about Thursday’s UK general election kept GBP EUR volatile.

Thursday will unsurprisingly be a vital session for Pound Euro traders. The results of the UK general election will begin to come in on Thursday night, but depending on how close they are a result may not be called until well into Friday.

The Euro could weaken further on Thursday if the ECB cuts its inflation forecasts as reports have suggested.

[Previously updated 12:53 BST 07/06/2017]

Despite uncertainty about the outcome of Thursday’s UK general election, the Pound Euro exchange rate advanced on Wednesday due to a Euro selloff. GBP EUR hit the level of 1.15 for the first time since last week.

Investors sold the Euro on Wednesday as a report emerged that the European Central Bank (ECB) was planning to cut its Eurozone inflation forecasts during Thursday’s policy decision. The report comes from Bloomberg.

The Euro could still react on Thursday as more information comes in, but for now a lower inflation forecast means it could be quite some time before the ECB begins to roll back its aggressive stimulus measures and normalise monetary policy.

[Previously updated 16:18 BST 06/06/2017]

Pound Euro Exchange Rate Slips on Tuesday

Tuesday afternoon saw the Pound Euro exchange rate weaker, falling further from the week’s best levels. The pair remained above the week’s opening levels however, with most investors still expecting the Conservatives to win a majority in Thursday’s election.

The day’s Eurozone retail data had little notable influence on the day’s GBP EUR movement but may have helped the pair advance in the morning.

Month-on-month Eurozone retail sales slowed to just 0.1% in April, below the expected 0.2%. Markit’s May retail PMI was also disappointing, dropping from 52.7 to 52.

April’s year-on-year Eurozone retail sales beat expectations with a result of 2.5% however.

Further volatility is likely on Wednesday, especially if investors become jittery again on the possibility of a ‘hung parliament’.

[Previously updated 12:45 BST 06/06/2017]

For the first half of Tuesday’s European session, the Pound Euro exchange rate repeated Monday’s trend. GBP EUR briefly touched a high of 1.1497 in the morning but didn’t quite hit the key 1.15 level.

Investors may be waiting for more polls showing a Conservative majority before they buy more into the Pound, but polls indicating a tighter race have not weakened the currency. A Survation poll showing that the Tories led by just one point had little effect on the Pound.

This quiet market confidence in a Conservative majority may be partially due to betting markets, which currently have 92% odds of a Conservative majority despite the mixed polling results.

However, with just two days until the election takes place there is still strong potential for investor jitters to worsen on Wednesday or Thursday, and weaken GBP EUR again.

[Published 06:00 BST 06/06/2017]

Monday’s European session saw the Pound reacting to the latest UK general election polls, regardless of how different their results were. Tight polls made GBP EUR drop and polls projecting big Conservative wins made the pair gain. This volatile Pound movement is likely to continue.

GBP EUR dropped slightly last week, from the level of 1.1450 to 1.1425. After hitting a nine-month-low of 1.1399 on Monday morning the pair advanced again, even nearing highs of 1.15 towards the end of the day.

Pound (GBP) Volatile on Mixed General Election Polls

Election week has arrived in Britain and despite early projections that the Conservative party would easily run away with a big majority, uncertainty has still soared in recent weeks.

The Conservatives have seen their lead drop due to falling popularity of UK Prime Minister Theresa May. The opposition party, Labour, has seen itself and its leader Jeremy Corbyn surge in popularity.

A poll published by The Mail on Sunday had both parties almost neck and neck, with the Tories only ahead of Labour by one point. A new YouGov poll of their experimental seat-based projection estimates the Tories will only win 305 seats, 21 short of a majority.

Despite these polls picturing a tight race leading to a potential ‘hung parliament’, the Pound still benefitted from a different poll.

ICM and The Guardian published a poll on Monday morning that projected the Conservatives with a strong 11-point lead over Labour.

These big differences in polling figures come from a wide variety of methodologies in polling this year, following mistakes in 2015 election and Brexit polling. According to Martin Boon, ICM’s director;

‘The imposition of historical-based turnout probabilities (assuming that behaviours will tend toward the historical pattern) drives down the Labour and upweights the Tories. Self-reported turnout scales, largely employed by those pollsters showing the smallest Labour leads, hardly impact on the headline numbers.’

Monday’s UK services PMI from Markit was slightly disappointing, dropping from 55.8 to 53.8 in May and missing the forecast 55. This had little effect on the Pound amid election anxiety though.

Euro (EUR) Strength Limited as PMIs Fail to Impress

Monday saw the publication of the Eurozone’s final May services PMIs from Markit. As some of the PMIs were disappointing and the overall results were ultimately nothing exciting, the Euro was unable to extend its recent gains.

While Germany’s services PMI beat expectations, remaining at 55.4 rather than slipping to 55.2 as forecast, Italy and France’s services sectors disappointed.

Overall, the Eurozone’s services sector was slightly better than expected at 56.3 rather than the projected 56.2, but it had still dropped from April’s 56.4. The composite print remained at 56.8 overall as expected.

After weeks of strong performance against other majors, the shared currency was sold slightly from its highs in profit-taking which made it easier for GBP EUR to gain on Monday.

Euro traders are also anxious about Thursday’s upcoming European Central Bank (ECB) meeting, following last week’s underwhelming Eurozone inflation data.

Pound Euro Forecast: Eurozone Retail Sales Stats Ahead

While there wasn’t much momentum behind Euro trade on Monday, that could change on Tuesday as April retail sales data for the bloc will be published, as well as May retail PMI from Markit.

However, whether they impress or not Sterling is more likely to take point in GBP EUR movement throughout the day, with ongoing volatility is expected

Britain’s economic calendar will be quiet until Friday’s April trade deficit update is published, but GBP investors will be focusing on the latest polls anyway – with just a couple of days until Britain’s 2017 general election takes place.

Any polls showing a strong lead for the Conservative party are likely to boost the Pound, while polls indicating a tight race or a ‘hung parliament’ will leave Sterling jittery.

Markets don’t appear to have a preferred polling methodology, so there will be reactions to big polls regardless of how they were created.

Later in the week, the European Central Bank’s (ECB) June monetary policy decision has the potential to influence Euro movement, especially if officials take a more hawkish tone than expected. Overall though, this week will see the Pound Euro exchange rate driven by UK election jitters.