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Euro to The Pound Today Rises, on ‘Hung’ Parliament Risk

Market CommentaryEuro to The Pound Today Rises, on ‘Hung’ Parliament Risk
Euro to The Pound Today Rises, on ‘Hung’ Parliament Risk
Euro to The Pound Today.

The euro to the pound interbank exchange rate stands at 0.8459 today at the time of writing. This is a gain of over 0.5 cents, or 0.66%, since yesterday’s low of 0.8403.

This could benefit you, if you’re a Brit selling property abroad on the Costa Blanca or in the Languedoc, to repatriate the money to the UK, or if you’re making regular payments to Britain.

This is because, when you transfer money to the UK from the Eurozone, you might get a higher sterling total, compared to if you’d exchanged euros for pounds yesterday.

To stay up-to-date with the euro to the pound interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, select ‘EUR’ (Euro) to ‘GBP’ (Great British Pound) to see this week’s rates.

Also, to check what’s influencing the value of the Eurozone’s common currency against sterling, go to our EUR to GBP Exchange Rate Updates page. Here, click on the most recent article.

One reason why the euro rates today have strengthened is because YouGov’s trusted MRP opinion poll has signalled that the Tories might win a smaller majority than previously forecast, at tomorrow’s UK election.

A second partial explanation why the EUR to GBP interbank exchange rate has risen is because YouGov’s updated MRP poll highlights the risk that there’ll be a ‘hung’ Parliament, or further Brexit deadlock in 2020.

Also, another factor why the euro to the pound interbank exchange rate has gained is because the UK’s economic data yesterday disappointed, with below-forecast GDP (Gross Domestic Product) growth and manufacturing statistics.

In addition, the EUR has risen in value against the GBP, because Germany’s economic data this week has exceeded predictions, with above-forecast exports and improved business sentiment.

EUR to GBP Rate Gains, as YouGov Poll Signals Smaller Tory Majority

As I mention, one reason why the euro to the pound interbank exchange rate has strengthened in the last day, is because YouGov’s trusted MRP (Multi-level Regression and Post-stratification) poll has highlighted the possibility that tomorrow’s UK general election will deliver a ‘hung’ Parliament.

This is when no single political party wins a majority of seats in the House of Commons, and could lead to further Brexit deadlock next year.

According to YouGov’s updated MRP, released yesterday at 22.00 GMT, Prime Minister (PM) Boris Johnson’s Conservative Party stands to win a majority of 28 MPs.

By comparison, at YouGov’s earlier MRP, made public a fortnight ago on Wednesday 27th November, PM Johnson’s party was pencilled in to win 68 seats. So as we can see, the Tories’ projected majority has dipped notably.

In particular, the Conservatives are now predicted to win 339 seats, 20 fewer than a fortnight ago. Meanwhile, Jeremy Corbyn’s opposition Labour Party is projected to gain 231 MPs, 20 more than on 28th November.

In part, it’s thought that YouGov’s MRP reflects a rise in support for Labour, mirrored in other recent opinion polls, and a corresponding fall in the Liberal Democrats’ poll standing.

However, YouGov’s MRP has concerned the financial markets, because up until recently, they were increasingly convinced that the Conservatives would win a solid majority of MPs tomorrow.

Following the release of YouGov’s survey, the world’s money managers are now factoring in a less than 70% probability that the Tories will decisively win on Thursday, down from 80% on Monday 9th, thereby weighing on sterling.

Euro Vs Sterling Rises, on Risk of ‘Hung’ Parliament, Further Brexit Deadlock

The pound has weakened following the release of YouGov’s MRP, first because it raises the risk of a ‘hung’ Parliament. After all, YouGov highlights that PM Johnson’s projected majority of 28 now sits within “the margin of error”.

This means that the Tories’ forecast win is small enough to be a statistical blip, given that, though the pollsters try to be right, they’re not always accurate.

For example, Anthony Wells, Director of Political and Social Research at YouGov, says that "Over the last fortnight we've seen the Conservative lead and the number of seats they are projected to win gradually fall. There are two days for voters to change their minds."

Meanwhile, Oliver Allen, at Capital Economics, says that the Tories “failing to win a majority would come as a shock.”

In general, the financial markets prefer the UK election not to deliver a ‘hung’ Parliament. This is because, in these circumstances, although a UK government might be formed, it may not have enough MPs to pass laws or finalise Brexit.

In this case, the UK could run up against its current Brexit deadline of January 31st 2020, thereby raising the risk of a surprise “No Deal” exit again, or having to ask Brussels for another extension.

In addition, the world’s investors are concerned by the possibility that, even if PM Johnson’s party wins a majority of MPs tomorrow, its majority might be very small.

If this happens, PM Johnson would have to unite all the factions of the Conservative Party, notably the pro-Brexit European Research Group (ERG), to finalise Brexit and approve the UK’s future trade deal, before the December 31st 2020 limit.

For example, Jordan Rochester, strategist with Nomura, says that "Anything sub 340 will not be welcomed by the market, 330 is when the shine starts to come off as ERG remain key players here."

This is to say that, if PM Johnson wins fewer than 340 MPs, the ERG could vote against his proposals from within the Tory Party. So this possibility has also weakened the value of sterling today.

Euro Strengthens Against Pound, as UK Economy Stagnates in October

In addition, another reason why the euro to the pound interbank exchange rate has strengthened in the last day is because, according to official statistics released yesterday, the UK economy stagnated in October.

This raises the possibility that Britain’s GDP (Gross Domestic Product) could contract in Q4 2019, between October and December.

UK GDP was flat at 0.0% in October, said the Office for National Statistics (ONS) on Tuesday. This was below forecasts for 0.1% growth, and follows August’s contraction of minus 0.2% and September’s fall of minus 0.1%.

In particular, it’s thought that the UK economy stagnated in the first month of the last quarter of 2019, because UK construction output surprisingly fell by 2.3%.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says that "With GDP in October merely in line with Q3’s average, it now looks set to undershoot the [Bank of England's] forecast for a 0.2% quarter-on-quarter increase in Q4.”

So this is to say that, with UK GDP flat in October, it’s increasingly likely that UK Q4 economic growth will be below estimates.

Elsewhere, it’s worth noting that the UK’s other economic statistics disappointed on Tuesday too. For instance, Britain’s goods trade deficit expanded to minus £14.486 billion in October, beyond forecasts for minus £11.65 billion.

Meanwhile, the UK’s industrial production declined by minus 1.3% in October, beneath expectations for minus 1.2% growth, and following September’s data of minus 1.4%.

These statistics have weakened sterling, because when the UK economy stagnates or shrinks, there are generally fewer investment opportunities in the UK.

In turn, this discourages the world’s money managers from investing in British assets, instead buying alternatives. As a result, when there’s less demand for UK assets, there’s less demand for the pound, thus weakening its value.

EUR/GBP Exchange Rate Gains, as German Exports, Sentiment Recover

Furthermore, another factor why the euro to the pound interbank exchange rate has gained in value in the last day is because Germany’s exports and economic sentiment have surprisingly recovered, according to respected statistics this week.

Germany is the Eurozone’s largest economy, its supposed engine room, so Germany’s prosperity often bodes well for the whole euro bloc.

To be specific, Germany’s exports rose by 1.2% in October, said Statistiches Bundesamt Deutschland this Monday 9th. This was above forecasts for a 0.3% fall.

Overall, Germany’s trade surplus surprisingly expanded to €20.6 billion in October, beating both predictions for €19 billion and September’s €19.2 billion. This is because Germany’s exports totalled €119.5 billion, well above imports.

Elsewhere, Germany’s economic sentiment improved this month, reported watchdog ZEW yesterday. To be specific, business optimism among Deutchland’s firms rose to 10.7 in December, beyond hopes for 0, as well as November’s figure of minus 2.1.

This was the highest figure since February 2018, and was buoyed by the rise in Germany’s exports and trade surplus recently.

For example, ZEW President Achim Wambach said following yesterday’s release that it “rests on the hope that German exports and private consumption will develop better than previously thought.”

There was “a higher than expected German foreign trade surplus in October, alongside relatively robust economic growth in the EU in the third quarter”, thereby lifting the euro.

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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.

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