Pound Euro Exchange Rate Undermined by Growing Election Risks

GBP/EUR Exchange Rate Stumbles as Boris Johnson Pushes for Early Election

The Pound to Euro (GBP/EUR) exchange rate is edging lower this morning as Boris Johnson is set to make another attempt at calling a snap election.

At the time of writing the GBP/EUR exchange rate is trading at around €1.1572, slightly down from the day’s opening rate.

Pound (GBP) Weakened by Rising Election Uncertainty

The Pound (GBP) is trading on the back foot this morning as the growing prospect of a UK general election before Christmas is keeping investors on edge.

Sterling was extended some support at the start of the week following the EU’s decision to grant the UK’s request for a Brexit extension. European Council President Donald Tusk confirmed the new deadline would be 31 January.

With the immediate threat of a no-deal Brexit on Thursday now avoided the focus quickly turned back to UK politics as Boris Johnson pushed a motion calling for a snap election.

While Parliament backed the motion at 299 to 70, Labour’s decision to abstain from the vote meant this fell well short of the two-thirds majority required to call an election under the Fixed-term Parliaments Act.

Undeterred, Johnson will make a fourth attempt at securing a general election today, this time through a one-line bill calling for an election to be held on 12 December.

While the bill faces some opposition over the date and could be subject to amendments, it has a far greater chance of passing given it only requires a simple majority.

As a result, election uncertainty is high this morning, extending some pressure to GBP exchange rates.

Euro (EUR) Pressured as Markets Eye GDP Release

Meanwhile the Euro (EUR) is struggling to capitalise on the Pound’s weakness this morning as an increasingly gloomy outlook for the Eurozone continues to weigh on sentiment.

Recent data from the Eurozone has painted an increasingly grim picture of growth in the bloc, with lacklustre inflation and PMI figures being particularly concerning.

EUR investors are concerned that this will be reflected in the Eurozone’s GDP release on Thursday.

While the general consensus is that growth will have slowed from 0.2% to 0.1% in the third quarter, some economists warn there is the risk that growth may have stagnated, fears of which is capping any upside in the Euro.

GBP/EUR Exchange Rate Forecast: Slowing German Inflation to Weigh on the Euro?

While parliament’s vote on Johnson’s election bill and the upcoming Eurozone GDP figures are the main focus this week, there is plenty of other data set to influence the Pound to Euro exchange rate (GBP/EUR) in the coming days.

This includes Germany’s latest consumer price index, which looks set to show that inflation in the Eurozone’s largest economy slowed to just 1.1% in October and pressure the Euro in the mid-week.

For GBP investors, there will be the publication of the UK’s manufacturing PMI at the end of the week, with Sterling potentially facing some pressure if factory growth slowed again in October as forecast.

Matthew Andrews

Contact Matthew Andrews