Pound Euro Exchange Rate Soars to €1.20 Following Sajid Javid’s Shock Resignation

GBP/EUR Exchange Rate Nears Two-Month High

The Pound to Euro (GBP/EUR) exchange rate has rocketed higher this afternoon as markets react to the surprise resignation of Sajid Javid as UK Chancellor of the Exchequer.

At the time of writing the GBP/EUR exchange rate is trading at around €1.2004, up roughly 0.7% from this morning’s opening rate and sitting just shy of a two-month high.

Pound (GBP) Surges as Javid’s Resignations Spurs Budget Speculation

The Pound (GBP) is flying high this afternoon in response to Sajid Javid’s decision to step down as Chancellor.

Javid’s resignation comes as somewhat as a shock, coming as Boris Johnson carries out his first major reshuffle since winning the December general election and just four weeks before he was due to deliver his first Budget.

Its reported Javid made the decision to step down after being told to fire his team of aides and work with a team picked out by Downing Street.

A source close to the former Chancellor said:

‘The prime minister said he had to fire all his special advisers and replace them with Number 10 special advisers to make it one team. The chancellor said no self-respecting minister would accept those terms.’

Javid will be replaced by former Chief Secretary to the Treasury Rishi Sunak.

GBP investors responded well to the news on the expectation that the new team at the Treasury will be more amenable to Number 10’s desire to increase infrastructure spending and provide a bigger boost to growth.

Paul Dales, Chief UK Economist at Capital Economics, comments:

‘We already thought that the Budget on 11th March would involve an extra loosening in fiscal policy worth 0.5% of GDP, which coming on top of the extra government spending announced in September 2019 would mean a fiscal boost of 1.0% is in the pipeline.

‘It’s now possible that the Budget will provide a bigger bang.’

The news may also be cheered by those at the Bank of England (BoE), after Governor Mark Carney told the House of Lord’s earlier this week that the UK government would need to increase public investment in order to support the bank’s efforts to stimulate growth.

GBP/EUR Exchange Rate Forecast: Weak German GDP to Drag on the Euro?

Looking ahead, the Pound to Euro (GBP/EUR) exchange rate may carry  its momentum through to the end of the week, as Germany gears up to release its latest GDP estimate.

The market consensus is that the German economy will have continued to expand in the last quarter of 2019, abet at a modest pace of just 0.1%.

However, this may be a little too optimistic in light of some truly abysmal German industrial data in December, with some analysts warning that this could have caused domestic growth to stall in Q4.

Meanwhile, the Pound may struggle to consolidate its gains tomorrow in the absence of any clear catalyst of movement.

Matthew Andrews

Contact Matthew Andrews