The euro to the pound interbank exchange rate has risen by 0.55% in the last day, from a low of 0.8531 yesterday to 0.8578 today at the time of writing.
This is because, when you transfer money to the UK, you could get a higher pound sterling total in your British bank account, compared to if you’d exchanged currencies 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 affecting the value of the common currency versus sterling on the interbank market, go to our EUR to GBP Exchange Rate Updates page. Here, click the latest article.
One reason why the euro to the pound today has strengthened is because the Conservative Party’s lead in the opinion polls has slipped, ahead of the UK’s general election on December 12th.
Another factor why the euro to pound interbank exchange rate has gained, is because it’s forecast that the Eurozone’s inflation for November will increase, ahead of figures this Friday 29th.
However, looking over the next two weeks, the euro’s value versus sterling could be affected, because the financial markets continue to price in a 66% chance of a Tory win at the UK election.
Euro Rates Today Increase, as Conservative Lead in Polls Weakens
As I mention, one reason why the euro to the pound interbank exchange rate has risen in value in the last day is because the Conservative Party’s lead in the opinion polls has fallen, ahead of the UK’s general election on December 12th.
It’s thought that this decreases the probability that a single party will win next month’s vote, reducing the odds that there’ll be a stable, majority government.
For example, survey company Kantar’s poll yesterday revealed that the Tories’ lead had fallen from 18% a week ago to just 11%, a 7% fall, reports Reuters.
In particular, Prime Minister (PM) Boris Johnson’s party had fallen by 2% points, to 42% support, while Labour had gained 5%, up to 32%. Meanwhile, the Liberal Democrats had fallen by 2%, to 14%, while the Brexit Party was up by 1%, to 3% support.
Kantar’s poll follows the release of opposition Labour’s campaign manifesto last week, in which the left-wing party pledged to greatly increase public investment.
Also, leader Jeremy Corbyn’s party promised to renationalise a number of UK industries, including rail and water, while offering free broadband. So Kantar’s poll suggests that these policies have lifted Labour’s support.
In addition, on Monday ICM’s newest survey revealed that the Conservatives’ lead against Labour was down to just 7%.
Importantly, this is below the 10% threshold that’s traditionally needed to grant the winning political party a majority of MPs in the House of Commons. So ICM’s poll raises the probability that December 12th’s election will not be decisive, with no single party winning.
Stephen Gallo at BMO Capital Markets says that "both "hung parliament" ramifications and Brexit transition risks are "underpriced"”, meaning that the financial markets haven’t yet factored in these possilities.
"Our best judgment is that a narrowing of the gap to materially less than 8% in [the Tories’] favour should be short-term GBP bearish,” adds Mr. Gallo. “Bearish” means that the pound could weaken.
This is to say that the narrowing gap between the Conservatives and Labour has weakened sterling. This is because, in general, the financial markets want a single political party to win next month’s UK vote.
After all, in these circumstances, Brexit might be resolved relatively quickly, while the UK could start negotiating its future trade deal with the EU, and its domestic agenda too.
By comparison, if there’s what’s called a ‘hung’ Parliament, in which no single party wins, the UK’s economic and political outlook may remain up-in-the-air.
For example, MPs in Parliament might remain unable to decide what sort of ‘Brexit’ they want, and run up against the current deadline of January 31st. This may slow the UK’s economic growth in 2020, thereby weakening sterling.
EUR to GBP Gains, as Eurozone Inflation Forecast to Rise in November
Elsewhere, another factor why the euro to the pound interbank exchange rate has risen in value is because it’s forecast that the Eurozone’s inflation has risen in November, ahead of official statistics released this Friday 29th November at 10.00 GMT.
When the Eurozone’s price pressures increase, this points to a healthy economy, where businesses feel confident enough to charge more.
To be specific, the financial markets predict that the Eurozone’s inflation rose by 0.2% this month, to 0.9%, ahead of official statistics agency Eurostat’s release, according to FX Street.
Meanwhile, the Eurozone’s “core inflation”, which measures the euro bloc’s domestic price pressures, excluding imported food and energy factors, is forecast to have risen by 0.1% in November, to 1.2%, ahead of Friday’s data.
If these predictions prove accurate, it would suggest that consumers in the Eurozone are buying enough goods and services, for business owners to raise their prices.
Historically, when there’s buoyant inflation in an economy, GDP (Gross Domestic Product) growth also increases at a steady pace. So if Eurozone inflation rises in November, this may be taken as a sign of greater health.
In turn, if the Eurozone’s inflation increases this Friday 29th, the European Central Bank (ECB) may be less likely to further cut interest rates, below their current 0.0%, or extend its extraordinary monetary stimulus, called Quantitative Easing (QE).
This is because, when price pressures in the euro bloc rise, this suggests that the economy is fit enough to grow, without greater monetary support.
However, it’s important to put this Friday’s Eurozone inflation figures into context. Even if the euro area’s price pressures expand by 0.2% to 0.9% in November, this would remain well below the ECB’s official target of close-to-but-below 2.0%.
Moreover, Eurozone inflation would remain notably below that of other industrialised nations, like the USA, where inflation is around 2.0%.
With this in mind, even if Eurozone inflation rises in November, the ECB looks likely to maintain interest rates at 0.0% for the foreseeable future, and continue its policy of extraordinary stimulus.
Meanwhile, new ECB President Christine Lagarde will likely continue her calls for Eurozone governments to spend more, so called “fiscal stimulus”, to accelerate the euro bloc’s moribund growth.
That said, if Eurozone inflation rises in November, it would at least suggest that the euro bloc isn’t sinking into deflation again. So these upbeat forecasts have lifted the EUR to GBP interbank exchange rate today.
Euro Versus Sterling May Be Affected, as Tories Forecast to Win UK Election
However, looking to the next two weeks until the UK’s general election on December 12th, the euro to the pound interbank exchange rate may be affected, because the financial markets continue to forecast that the Conservative Party will win a majority of MPs.
Even taking into account this week’s falling lead in the polls, the probability stands at 66%, down just 4% from 70% last Friday, says The Telegraph newspaper.
For example, Jonas Goltermann at Capital Economics says that Labour “remains well behind in the polls, and the betting markets put the chances of an outright Labour majority at just 3%."
Meanwhile, Fritz Louw at MUFG says that "The Tories already have a large lead over the Labour party in the [polls].” So the world’s investors continue to factor in the possibility of a Tory win.
In general, global money manager want a single political party to win the UK’s election, to resolve Brexit as fast as possible.
After all, PM Johnson has already negotiated his Brexit deal with the EU, and all his Conservative MP candidates have pledged to vote for this, if the Tories enter government. So in this case, Brexit would be resolved fast, reducing uncertainty for UK businesses.
By comparison, if no single political party wins, then the Brexit deal might be renegotiated again, there might be another referendum, or Scotland could try to seek its independence once more.
Any of these possibilities would increase the uncertainty in 2020 over the UK’s political and economic direction, potentially discouraging firms from hiring employees or buying new equipment.
For example, Mr. Louw at MUFG notes that "At the same time, the incoming economic data flow from the UK has taken a negative turn recently."
In part, this is because of the ongoing Brexit uncertainty, what with the UK’s deadline having been extended twice, from March 31st 2019, to October 31st 2019, then to January 31st 2020. This makes it tough for firms to plan for the future.
That said, as I mention, the financial markets continue to factor in a 66% chance that the Conservatives will win a majority at next month’s election. This suggests 2/3rds confidence that PM Johnson’s government will form a stable government.
We’ll see how the opinion polls develop in the next two weeks, ahead of polling day, which may affect the euro to the pound interbank rate.
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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.