Pound euro (GBP/EUR) exchange rate retreats from two-week high
The pound euro (GBP/EUR) exchange rate is trapped in a narrow range this morning, after retreating from the 12-day high struck at the opening of this week’s session.
At the time of writing, GBP/EUR is trading at around €1.1825, virtually unchanged from this morning’s opening levels.
Euro (EUR) mixed following French election
The euro (EUR) is trading sideways against the majority of its peers this morning following the final round of France’s election held over the weekend.
The results confirmed that no party had won the 289 seats necessary to win a majority, with markets surprised to see that the left-wing alliance Nouveau Front Populaire (NFP) pushed Marine Le Pen’s Rassemblement National (RN) party into third place.
Coming in first was the left-wing NFP with 182 seats, followed by President Emmanuel Macron’s centrist group, winning 163 seats.
With only two options remaining, a hung government or an unlikely coalition between the NFP and President Macron’s centrist party, concerns over potential political gridlock in the Eurozone’s second largest economy is likely to infuse volatility into the single currency in the short-term.
Holger Schmieding, an economist at Berenberg, an investment bank, commented:
‘The political forces that joined forces to prevent an RN government have little else in common. Their views on migration, social and cultural issues, fiscal policy and the need for pro-growth reforms are often diametrically opposed. Forming a government will not be easy. Times are tough, emotions are running high – and France has no tradition of forging coalitions between parties of very different political persuasions.’
However, relief that RN will not be able to pursue its unsustainable fiscal policies is helping to limit the euro’s losses so far this morning.
Pound (GBP) rangebound amid limited data
The pound (GBP) is struggling to garner investor attention this morning as a listless UK data-calendar has seen GBP exchange rates struggle to find a clear direction.
Amid an absence of domestic data, GBP investors may look ahead to Bank of England (BoE) official Huw Pill’s upcoming speech this week.
As the central bank cancelled all public statements in the run up to the UK’s general election, GBP investors will look ahead to Wednesday’s speech hoping the BoE policymaker will drop some hints surrounding the likelihood of an August interest rate cut.
Pound euro exchange rate forecast: political landscapes to drive movement?
Looking ahead, amid a continued lack of data from the UK and from within the Eurozone, the pound euro exchange rate could be driven by current political landscapes.
For the euro, the common currency will likely remain muted against its peers as France’s post-election talks take place. However, should the likelihood of a hung parliament increase, EUR exchange rates could slip.
Turning to the pound, as domestic data is also thin on the ground for the first half of the week, GBP investors may also focus on the UK’s new Prime Minister’s first full week in office, and will likely see GBP movement also remain limited.