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Pound Euro Exchange at 31-Month High, as Poll Suggests Tory Win

Market CommentaryPound Euro Exchange at 31-Month High, as Poll Suggests Tory Win
Pound Euro Exchange at 31-Month High, as Poll Suggests Tory Win
Pound Euro Exchange.

The sterling vs euro interbank exchange rate has hit 1.1764 in the last day. This is its highest in over 31 months, or since May 14th 2017.

By comparison, back on August 10th 2019, the pound to euro interbank exchange rate was as low as 1.0646. So it’s since up by 10.5%, or by over 11 cents.

This could benefit you, because when you transfer money to Spain or France from the UK, you might get a higher euro total, compared to if you’d exchanged currencies in the last 31 months.

In turn, this may make it more affordable for you, if you’re emigrating to the Costa Blanca or the Cote d’Azur, or if you’re a UK business owner making international payments to the Eurozone.

To stay up-to-date with the sterling vs euro interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, scroll down to the Latest Market Rates Widget, to see this week's interbank rates.

Also, to check what’s affecting the value of the pound against the euro on the interbank market, go to our GBP to EUR Exchange Rate Updates page. Here, just click on the most recent article.

One reason why the pound to euro interbank exchange rate has hit this 31-month high in the last day is because the Tories are on course for an election victory, according to a trusted new poll.

However, looking to the next two weeks, sterling’s value versus the euro may be affected, because the poll gap between the Conservatives and Labour is shrinking, say new surveys this week.

In addition, the sterling vs euro interbank exchange rate might be affected, by the Eurozone’s inflation data for November, released tomorrow, which is forecast to show higher price pressures.

Sterling Vs Euro Rises, as Tories to Win Election, Says YouGov’s MRP

As I mention, one reason why the pound euro exchange rate on the interbank market has hit 1.1764 in the last day is because, according to an anticipated new poll, the Conservative Party is on course to win the UK’s December 12th general election.

It’s thought that, if one political party decisively wins next month’s vote, this might at last unblock Brexit, and favour the UK’s economy.

In particular, according to survey company YouGov’s MRP poll on Wednesday night, the Conservatives may win 359 seats at next month’s election, compared to the opposition Labour Party’s 211, reports The Independent.

Overall, it’s forecast that the Tories might win a majority of 68 seats. In this case, Prime Minister (PM) Boris Johnson would be able to pass laws, without support or pacts with other parties.

The financial markets pay special attention to YouGov’s MRP poll, because it’s the only survey that forecast that, at 2017’s general election, former PM Theresa May would lose her Parliamentary majority.

Unlike other polls, which are based on small survey sizes, the MRP maps all of YouGov’s existing data, to try and closely predict how many MPs each political party will win in Parliament.

For example, Kristoffer Kjær Lomholt, analyst at Danske Bank, says that "the model was the only one correctly predicting that Theresa May would lose her absolute majority in 2017."

“The model is different from traditional opinion polls/seat projections, as it makes its predictions based on a bottom-up approach rather than topdown," adds Mr. Kjær. So these results have contributed to lift the pound.

In general, the world’s money managers want a single political party to win December 12th’s UK general election. This is because, in this case, a stable, majority government would be formed, with clear policies over Brexit, taxes, as well as domestic priorities like transport and schools.

In turn, this may encourage the UK’s businesses to hire and invest, thereby lifting economic growth.

In particular, it’s thought that, if one political party wins next month’s vote, Brexit will be resolved relatively quickly. This is because all of PM Johnson’s Conservative MP candidates have pledged to vote for his Brexit deal, if they win.

In turn, this will enable the UK to begin negotiating its future trade deal with the EU, providing clarity about the terms on which we’ll export to Europe.

For example, Terence Wu, strategist with OCBC, says that the pound "blipped higher after the YouGov poll indicated that the Conservatives would be expected to garner a significant majority at the 12 December 2019 polls."

This YouGov MRP poll suggests that next month’s election will deliver a decisive outcome, which the financial markets are looking for, thereby bolstering sterling.

GBP to EUR Rate May Be Affected, as Polls Show Gap Between Parties Shrinking

However, looking to the next two weeks, the pound to euro interbank exchange rate may be affected, because in spite of YouGov’s MRP poll yesterday night, the UK general election result is not guaranteed.

To the contrary, a number of opinion polls this week have shown that the gap between the Conservative and Labour parties is shrinking, as support for the left-wing party increases.

For example, according to Savanta ComRes’ latest poll for The Telegraph newspaper yesterday, the Tories’ lead has fallen by 3% in the last week, to 7%. In particular, the Conservatives have lost 1%, to 42%, while Labour is up by 2%, to 34%, reports Reuters.

This echoes similar surveys by ICM and Kantar this Monday and Tuesday, which also show the gap between the two main parties shrinking.

Importantly, Savanta ComRes’ newest survey suggests that the Conservatives are below the 10% lead that’s traditionally needed to ensure a majority of MPs in Parliament.

As a result, this raises the possibility that next month’s election may deliver what’s called a ‘hung’ Parliament. This is when a government is formed, yet no single party wins enough seats for a majority in Parliament.

Elsewhere, it’s worth adding that, although YouGov’s MRP poll accurately predicted the result of 2017’s general election, that survey was released two days before the vote.

By comparison, yesterday’s MRP poll was released two weeks before Britons go to the ballot boxes. So in the remaining fortnight, there’s time for the polls to shift, which will be reflected as the MRP updates.

In addition, it’s worth noting that, yesterday, PM Johnson’s chief strategist, Dominic Cummings, published a blog post, in which he warned that the election is much tighter than the polls suggest.

In particular, Mr. Cummings said: “Trust me, as someone who has worked on lots of campaigns, things are MUCH tighter than they seem and there is a very real possibility of a hung parliament.”

With this in mind, the UK election result remains up-in-the-air, which could affect the sterling vs euro interbank exchange rate. Citibank analysts say that "If the general election results in hung parliament, nothing is resolved and Brexit remains in limbo."

Also, Michael Cahill, analyst at Goldman Sachs, says that "A hung parliament would prolong the uncertainty” regarding Brexit.

If no single political party wins the December 12th election, then a majority of MPs may remain unable to decide what course to take over Brexit, while the UK’s domestic agenda might remain neglected.

As we’ve seen in recent months, this causes deadlock, in which the government is unable to pass laws. If this continues after the election, it could affect the pound versus the euro.

Pound Euro Exchange May Be Influenced, by Eurozone’s Inflation for November

Furthermore, the sterling vs euro interbank exchange rate may be affected tomorrow, by the release of the Eurozone’s inflation figures for November.

These are forecast to show that price pressures in the common currency bloc rose by 0.2% this month to 0.9%, according to FX Street. This may affect the value of the pound against the euro, as higher inflation generally points to a healthy economy.

To be specific, if Eurozone inflation increases in November, this will be the first rise in five months.

In turn, this may help convince the European Central Bank (ECB) that it can maintain interest rates at 0.0%, while holding steady its extraordinary monetary stimulus, called Quantitative Easing (QE). After all, when inflation rises, this suggests that the bloc doesn’t need further support.

However, even if Eurozone price pressure rise to 0.9% tomorrow, it’s useful to put this into context. 0.9% inflation remains well below the ECB’s official target of close-to-but-below 2.0%, which the central bank has struggled to reach for years.

In recent years, the Eurozone has even struggled with deflation, in which prices not only stop rising but start to fall, point to economic stagnation.

As a result, even if the ECB doesn’t further cut interest rates, ECB President Christine Lagarde will likely continue to call for the Eurozone’s more solvent countries to spend more.

This so-called “fiscal stimulus”, which means when the government invests in roads, infrastructure, or technology, also tends to increase economic growth. In turn, this may lift the Eurozone’s inflation also.

The Eurozone’s inflation figures are released on Friday 29th at 10.00 GMT. If they exceed or disappoint investors’ forecasts, this has the potential to affect the sterling vs euro interbank exchange 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.

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