The Pound to Euro exchange rate rallied by around two cents last week on news of snap UK elections but then gave back all of those gains following the results of the first round of the French Presidential elections.
Sterling Surges On Surprise UK Election
At the beginning of last week’s session the Pound was buffeted higher by a surprise announcement from British Prime Minister Theresa May. The PM called snap elections in June and markets reacted by buying into the Pound due to expectations that May will widen her parliamentary majority, which is expected to strengthen the UK government’s hand in the upcoming Brexit negotiations.
The Tories currently hold around a 20-point lead in the polls over the opposition Labour party and analysts believe a decisive victory in the snap elections would give PM May a strong platform to pursue her vision for Brexit Britain. It is thought that the vote will help quell dissidents within her own party – some of whom would prefer to completely sever ties with the EU and some of whom would prefer maintaining access to the single market. It is also hoped that, by pushing back the next general election from 2020 to 2023, the early vote will allow the PM to put a transitional deal in place if a comprehensive new trade deal is not agreed within the two-year EU divorce period. This, it is hoped, will prevent Britain from reverting to damaging world trade organisation tariffs.
Data Takes Back Seat
GBP/EUR surged from around 1.18 to a 2017 high of almost 1.20 following the election announcement. The news dominated GBP/EUR sentiment last week, meaning ecostats only had a limited impact on trading decisions.
British retail sales came in disappointingly low at -1.5% for March, marking a seven-year low quarterly drop of -1.4%. Eurozone private sector output rose to a six-year high of 56.7. But neither result had a material impact on the Pound to Euro exchange rate.
Macron Takes On Le Pen In French Presidential Election
Markets reopened this week to news that centrist, pro-EU candidate Emmanuel Macron would be taking on far-right, anti-EU candidate Marine Le Pen in the second round of the French Presidential Elections. The single currency soared on the news, taking GBP/EUR back down to 1.18, because analysts are confident French voters from both sides of the political spectrum will rally around Macron to prevent a victory for Le Pen and her divisive policies.
Week Ahead
Provided there are no shock revelations that strengthen Le Pen / weaken Macron’s bid, then we could see the Euro remain well-bid in the lead-up to the final round of votes on May 7.
In the meantime, the European Central Bank is set to leave policy on hold on, Eurozone CPI is expected to rise form 1.5% to 1.8% and UK first quarter GDP is tipped to come in at 0.4%, down from 0.7% in Q4 2016. The data carries the potential to drive GBP/EUR lower towards the end of the week.