Pound to Euro Exchange Rate Sustains Gains as Eurozone Outlook Remains Mixed
The Pound Sterling to Euro (GBP/EUR) exchange rate started this week out on a strong note, following two weeks of solid gains as investors pile into the Pound (GBP) ahead of this week’s anticipated UK General Election.
Last week ultimately saw a strong advance in GBP/EUR, as the pair opened at the interbank level of 1.17 and closed over a cent higher, in the region of 1.18.
This morning, the Pound continues to trend with an upside bias due to UK election hopes, and even briefly touched on a new two-and-a-half year best. GBP/EUR tested highs of 1.19 this morning for the first time since April 2017.
Further Pound to Euro gains were limited as investors awaited major news expected this week. This includes upcoming Eurozone data and of course Thursday’s General Election.
Pound (GBP) Exchange Rates Supported as Polls Show Ruling Conservatives Extending Lead
For most of last week, investors bought the Pound (GBP) as bets that the ruling Conservative Party would win a comfortable majority at the upcoming UK General Election boosted market confidence.
Despite a lack of polls showing a growing lead for the Conservatives, polling averages showed that the party’s lead was steady. It also indicated that the opposition Labour Party had stopped gaining.
Bets of a Conservative majority boosted the Pound in the second half of last week. This is perceived as making a no-deal Brexit less likely, and making it easier for Prime Minister Boris Johnson’s relatively soft Brexit plans to pass.
This week so far, hopes of a Conservative majority continue to support Sterling. The British currency saw extra support from the weekend’s news that the Tories had extended their lead in one fresh poll.
However, even pollsters are warning of uncertainty with mere days until election day, including the boss of Datapraxis.
HOLD YOUR HORSES KLAXON
Datapraxis boss Paul Hilder says: "We have never seen as many undecided voters this late in the campaign. As many as 80-90 constituencies are still up for grabs. A much larger Conservative landslide is still possible – but so is a hung Parliament."
— Tim Shipman (@ShippersUnbound) December 7, 2019
Euro (EUR) Exchange Rates Supported by German Trade Results
The Pound (GBP) was advancing when markets opened today, but the currency’s gains were limited against the Euro (EUR).
Demand for the shared currency has been a little stronger amid the recent weakness in its rival, the US Dollar (USD), as well as signs of recovery in recent Eurozone data.
Last week’s Eurozone data was highly mixed, with PMIs showing more signs of recovery, but German factory stats being highly concerning and causing German recession fears to return.
As a result though, this morning’s German trade balance report from October came as a slight relief. The data beat forecasts, revealing that exports only slipped to 1.2% rather than contracting at the expected -0.7%.
According to Carsten Brzeski, Chief Economist at ING Germany:
‘Today’s trade figures are the first positive data for the final quarter of the year. With disappointing consumption and industrial data but encouraging trade data, the economy will remain on a windy road between contraction, stagnation and meagre growth.’
Pound to Euro (GBP/EUR) Exchange Rate Seeing Deepened Focus on UK Election
While tomorrow will see the publication of a slew of UK ecostats, investors may brush over these results in favour of focus on Thursday’s election.
October trade balance, growth rate and production stats will be published tomorrow. They could give investors a better idea of how Britain’s economy is performing.
However, it is expected that Brexit uncertainty will be responsible for any economic weakness. As a result, hopes that the upcoming election could help to resolve the Brexit process could keep the Pound (GBP) instead.
Britain’s anticipated General Election will be held on Thursday the 12th. If polling shows the race tightening or if the election ends with a surprise outcome, the Pound may be in for big volatility in the coming days.
The Euro (EUR) is more likely to react to ecostats this week, especially if they continue to show signs of Eurozone economic recovery.
French industrial production and ZEW’s economic sentiment stats for Germany and the Eurozone will be published tomorrow.
Then, alongside election jitters, German inflation, Eurozone production and the European Central Bank’s (ECB) December policy decision could influence the Pound to Euro (GBP/EUR) exchange rate on Thursday.