Pound Sterling Euro (GBP/EUR) Exchange Rate Gains Evaporate as UK Polls Open
With voting in the snap general election underway the Pound Sterling to Euro (GBP/EUR) exchange rate failed to hold onto its positive footing.
While markets still have a Conservative majority priced in as the most likely outcome of the vote the potential for an upset remains, limiting the appeal of Pound Sterling (GBP) this morning.
A return to the Pound’s earlier bullishness appears unlikely at this stage, with the lingering risk of another hung parliament keeping investors on their toes today.
Until the ultimate result of the election becomes clear GBP exchange rates look set to lack any particular traction.
Euro Under Pressure as Markets Brace for ECB Policy Announcement
Support for the Euro (EUR), meanwhile, remained generally muted ahead of the European Central Bank’s (ECB) final policy meeting of 2020.
Although no change in monetary policy looks likely at this stage markets are keen to assess the policy outlook of new ECB President Christine Lagarde.
Any indication that Lagarde could adopt a less dovish policy bias than her predecessor may encourage the single currency to trend higher across the board.
Evidence that the central bank is willing to leave interest rates on hold for longer could help to limit the downside potential of EUR exchange rates, in spite of the underwhelming nature of recent Eurozone data.
UK Election Outcome Set to Dictate Direction of GBP/EUR Exchange Rate
Fresh volatility could be in store for the GBP/EUR exchange rate tomorrow once the results of the election become clear.
A weaker performance for the Conservatives could see GBP exchange rates trending lower across the board thanks to the prospect of further political turmoil.
If the opinion polls prove correct, however, the potential for additional Pound Sterling gains looks limited thanks to the sustained rally seen over the course of the election campaign.
As market focus shifts back towards the issue of Brexit the mood towards the Pound could sour further, with the matter of the UK’s future relationship with the EU still up in the air.
Unless investors see reason to bet against the prospect of a hard Brexit scenario the GBP/EUR exchange rate looks set to fall further away from its recent 31-month high.
Soft December Eurozone PMIs Forecast to Weigh on Euro Appeal
Even so, the appeal of the Euro could weaken further next week unless December’s set of Eurozone manufacturing and services PMIs show signs of improvement.
As long as the Eurozone economy shows fresh evidence of a slowdown EUR exchange rates could fall further out of favour.
A disappointing performance in December would set the Eurozone on course for a weak fourth quarter gross domestic product reading, putting a dampener on the single currency.
Further weakness from the German economy could put particular pressure on EUR exchange rates, given its narrow avoidance of a technical recession in the third quarter.