The euro to the pound interbank exchange rate has risen by 0.64% in the last day, from a low of 0.8517 on Monday 2nd December up to a high of 0.8572.
This is because, when you transfer money to the UK from the Eurozone, you might get a higher pound total, compared to if you’d exchanged currencies yesterday.
To stay updated with the euro to the pound today, visit Pure FX’s Rates & Tools page. Here, select ‘EUR’ (Euro) to ‘GBP’ (Great British Pound) to see this week’s interbank exchange rates.
Also, to check what’s influencing the value of the Eurozone’s common currency versus sterling, go to our EUR to GBP Exchange Rate Updates page. Here, click on the most recent article.
One reason why the euro to the pound interbank exchange rate has strengthened in the last day is because the Conservatives’ poll lead is narrowing, ahead of the UK’s general election.
Another factor why the EUR to GBP interbank exchange rate has risen in value is because it’s been confirmed that UK manufacturing contracted for the seventh consecutive month in November.
However, looking forward, the common currency may be affected versus sterling, as new European Central Bank President Christine Lagarde has confirmed that the Eurozone remains “weak”.
Euro Rates Today Rise, as Tory Poll Lead Narrows, Ahead of UK Election
As I mention, one reason why the euro to the pound today has strengthened on the interbank market is because the Conservative Party’s lead in the polls is narrowing, ahead of the UK’s general election on December 12th.
It’s thought that, if the election result isn’t decisive, this may cause a ‘hung’ Parliament, in which case no party wins a majority of MPs, extending Brexit uncertainty.
To explain, according to the New Statesmen magazine’s ‘Britain Elects’ poll tracker, the Tories are down by 0.4%, at 42.4%, while the opposition Labour Party is up by 2.1%, to 31.8%.
This puts the gap between the UK’s biggest political parties at 10.6%, closer to the 10% figure that’s traditionally enough to grant the winning party a majority in Parliament, to form a stable government.
In particular, some financial market analysts remark that the Tories may have hit their “high water mark”, in which they might struggle to rise further in the opinion surveys.
By comparison, as we can see in the New Statesmen magazine’s ‘Britain Elects’ poll tracker, Labour’s support among the British voting public is continuing to increase. As a result, the gap between the parties is narrowing.
This has weakened sterling, because the financial markets are concerned that, if next week’s vote doesn’t deliver a clear result, the UK’s domestic legislative and Brexit limbo may continue.
After all, if there’s a ‘hung’ Parliament, in which a government is formed yet without a majority of MPs in Parliament, the government may struggle to pass new laws or finalise their version of Brexit.
In this case, the UK might run up against its current Brexit deadline, of January 31st. If this happens, the UK again runs the risk of exiting the EU with ‘No Deal’, or negotiating with Brussels for a third extension.
In turn, this might make British businesses and investors nervous, thereby slowing the UK’s GDP (Gross Domestic Product) growth in 2020. So this risk has weighed on sterling.
For example, Citibank analysts say that "If the general election results in hung parliament, nothing is resolved and Brexit remains in limbo."
So the financial markets are paying close attention to the opinion polls, ahead of the December 12th election, to try and anticipate the outcome. Thus, the rising probability that the result won’t be decisive is encouraging investors to sell the pound.
EUR to GBP Rate Rises, as UK Manufacturing Shrank for 7th Month in November
In addition, another partial explanation why the euro to the pound today has risen on the interbank market is because it’s been confirmed that the UK’s manufacturing sector shrank for a seventh consecutive month in November.
In turn, this may weaken the UK’s GDP growth in the final three months of the year, between October and December, while boding ill for a recovery in 2020 too.
According to economics watchdog IHS Markit’s monthly PMI (Purchasing Managers Index) on Monday 2nd, UK manufacturing activity was at 48.9 in November. This is 0.6 points above financial market forecasts of 48.3, as well as October’s result of 48.3.
However, this is still the seventh straight month below the important 50.0 figure, that separates economic growth from contraction, reports Reuters.
In particular, it’s reported that UK factory output shrank further this month, although at a slower pace than October, both because of Brexit and general election uncertainty.
IHS Markit remarks that "The UK manufacturing downturn continued in November, as businesses responded to the delay to Brexit and a fresh injection of uncertainty from the forthcoming general election.”
The economics watchdog added that output, new orders and employment in UK manufacturing all fell in November. The UK factory sector contributes roughly 10% to the UK’s GDP.
So when British manufacturers produce less, it’s harder for the UK to report positive quarterly economic growth. In turn, these reports of a further contraction have weakened sterling versus the euro.
For example, Duncan Brock, Director at the Chartered Institute of Procurement & Supply (CIPS) said about these figures that:
“A heavy sense of inevitability hung around the sector in November as it continued to suffer the effects of a lethal cocktail of Brexit uncertainty, slowing global growth and an impending general election. These combined to stifle any chance” of a return to growth.
Meanwhile, Samuel Tombs, UK economist for Pantheon Macroeconomics, said that
"For now, firms are not confident enough about the business outlook to hire more workers; the employment balance remained marginally below 50 for the eighth consecutive month. Overseas firms will be wary of sourcing components from UK suppliers,” and thereby weakening the value of sterling.
Euro to The Pound May Be Affected, as Lagarde Says Eurozone “Remains Weak”
However, looking to the foreseeable future, the euro to the pound interbank exchange rate may be influenced, because new European Central Bank (ECB) President Christine Lagarde said yesterday that the Eurozone’s economy “remains weak”.
Ms. Lagarde, who became ECB President on November 1st, was speaking at her first regular appearance at the European Parliament.
In particular, Ms. Lagarde told MEPs (Members of European Parliament) that a “sluggish and uncertain” global economy was weighing down the Eurozone’s factory sector.
Yesterday, IHS Markit reported that the Eurozone manufacturing PMI hit 46.9 in November, while Germany’s was 44.1. These are both deeply within contraction territory, below the 50.0 figure that points to growth.
Given this, the new ECB President added that the Eurozone’s central bank has “the tools to respond in case the situation does not improve,” according to FX Street.
This is to say that, even though the euro bloc’s interest rates stand at 0.0%, and the ECB is injecting €20 billion a month in monetary stimulus, the ECB could further cut borrowing costs if needed. These would be further extraordinary measures.
Were the ECB to further add to its monetary stimulus, this traditionally weakens the euro, because it’s a sign of the Eurozone’s continuing economic deceleration.
What’s more, given that the Eurozone’s central bank’s stimulus involves printing billions of new euros a month, to cut the cost of a loan, this greatly increases the supply of euros available. This tends to devalue the common currency.
However, it’s worth adding that Ms. Lagarde and the 24 other members of the ECB’s Governing Council look unlikely to further cut interest rates for now.
The new ECB President added yesterday in Strasbourg that the central bank’s stimulus is “working”, which is to say that it’s propping up the Eurozone’s economy. Nonetheless, the possibility of further stimulus may affect the euro in 2020.
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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or Contact Us.