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Pound Euro Exchange at New 31-Month High, on Tory Win Odds

Market CommentaryPound Euro Exchange at New 31-Month High, on Tory Win Odds
Pound Euro Exchange at New 31-Month High, on Tory Win Odds
Sterling Vs Euro.

The pound to euro interbank exchange rate stands at 1.1913 today at the time of writing. This is its highest in over 31 months, or since April 23rd 2017.

By comparison, back on August 10th 2019, the sterling vs euro interbank exchange rate was as weak as 1.0646. So it’s since risen by 11.9%, or by over 12.5 cents.

This could be useful information for you, if you’re a Briton buying property abroad on the Costa del Sol or the Cote d’Azur, or if you’re making international payments to the Eurozone.

This is 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.

To stay up-to-date with the pound to 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 sterling versus the Eurozone’s common currency recently, go to our GBP to EUR Exchange Rate Updates page. Here, click on the latest article.

One reason why the sterling vs euro interbank exchange rate has hit this new 31-month high today is because markets are increasingly confident of a Tory victory at this week’s UK election.

However, looking to the four days remaining until polling day, the pound’s value against the euro might be affected, by the risk of a ‘hung’ Parliament, in which no single political party wins.

In addition, the pound to euro interbank exchange rate could be influenced this week, by UK economic growth data for October, and the European Central Bank’s latest interest rate meeting.

Sterling Vs Euro Hits New 31-Month High, as Odds of Tory Win Rise

As I mention, one reason why the pound to euro interbank exchange rate has reached this new 31-month high of 1.1913 today, is because the financial markets are factoring in an increasingly high probability that the Conservatives will win this Thursday 12th December’s UK election.

It’s thought that if a single party wins this week’s vote, it will add to UK economic and political stability in 2020.

To be specific, the world’s money managers now factor in an 80% chance that Prime Minister (PM) Boris Johnson’s political party will win at the ballot boxes this week.

By comparison, this time last week the odds were at 65%. So this tells us that, with just four days to go until the British voting public goes the polls, the markets are pencilling in a 4/5 probability of a Tory victory.

The markets increasingly factor in a Tory win this Thursday, because the latest opinion polls suggest that PM Johnson’s party has maintained and, in some cases, extended its lead.

For example, according to Survation’s newest poll for ITV’s Good Morning Britain, the Tories are up by 2%, to 45% support, while Jeremy Corbyn’s opposition Labour party is down 1%, to 31% support, reports Reuters.

So according to Survation, the Conservatives enjoy a 14% lead. Traditionally, a 10% lead is considered enough to grant the winning political party a majority of MPs in the House of Commons.

So Survation’s latest poll suggests that PM Johnson’s party is comfortably enough ahead to win a majority of seats. This would enable a single party to form a stable government in late 2019.

What’s more, it’s worth noting that, at this stage in the 2017 general election, Survation’s poll just four days before Brits went to the ballot boxes put the Tories merely 1% ahead.

This made Survation the most accurate pollster two years ago. With this in mind, the financial markets are paying special attention to this week’s Survation survey, which gives the Tories a 14% lead.

Elsewhere meanwhile, according to BMG’s newest survey for The Independent, the Conservatives have gained 2% in the last week, to 41% support, while Labour is down 1%, to 31% support.

This puts PM Johnson’s party 10% ahead, again enough to theoretically win a majority of MPs in Parliament. Meanwhile, other surveys recently also put the Tories around 9%-10% ahead.

Elsa Lignos at Capital Markets says that "GBP is rallying again after markets all but fully discount a good Tory majority.”

Meanwhile, Kim Mundy, strategist with CBA says that "Judging from recent polls, the most likely scenario is the Conservative party win majority government. If this scenario pans out... the UK would be on the way towards an orderly Brexit on 31 January 2020.”

In general, the world’s money managers want a single political party to win this Thursday’s UK election.

This is because, first, it’s thought that this will enable the UK to at long last finalise Brexit, get on with negotiating the future trade deal with the EU, and work on the UK’s domestic priorities like schools and hospitals. This may help provide stability to the UK’s economic outlook in 2020.

Second, if UK businesses see that there’s a stable government, with a plan for Brexit, they may decide to hire more staff and invest in new equipment and technology.

After all, since the UK’s vote for Brexit in June 2016, business investment has fallen, as companies await clarity. So if the election provides this clarity, the UK’s economy could accelerate next year, lifting the pound also.

GBP to EUR Rate May Be Affected, by Possibility of ‘Hung’ Parliament

However, turning to the four days remaining until Brits go to the ballot boxes, the sterling vs euro interbank exchange rate could be affected, by the continuing possibility that there’ll be a ‘hung’ Parliament.

This is when no single political party wins a majority of seats in Parliament. If this happens, it may extend the UK’s domestic and Brexit limbo, up to the new January 31st deadline.

The world’s money managers think that it’s possible that there’ll be a ‘hung’ Parliament, because there’s an 80% chance of a Conservative majority. To turn this statistics upside-down, there remains a 20% probability that no single political party will win this Thursday’s election.

In this case, though a government may be formed, they could struggle to pass laws or resolve Brexit.

After all, at the 2017 UK general election, former PM Theresa May unexpectedly lost the Conservatives’ majority in the House of Commons.

As a result, she was forced to sign an alliance with Northern Ireland’s Democratic Unionist Party (DUP), on whom she depended for votes. This complicated the UK’s Brexit negotiations, as the DUP’s few MPs were able to veto UK/EU proposals.

Similarly, there’s been a ‘hung’ Parliament under incumbent PM Johnson, ever since Mr. Johnson’s ejected several Conservative MPs from his party, for rebelling against his Brexit plans.

Since then, opposition MPs have frequently ganged together, to take control of Parliament’s legislative agenda, reject the government’s proposals, and amend laws. As a result, Brexit is in deadlock.

With this in mind, even though the opinion polls suggest that the Conservatives will win a majority on Thursday, investors remain wary of the risk of a ‘hung’ Parliament.

In particular, if this happens, the UK could run up against its current Brexit deadline of January 31st 2020. In this case, the risk of a ‘No Deal’ Brexit may rise, or having to ask for another extension from Brussels.

This could complicate the UK’s economic and political outlook next year. If there’s neither a majority, stable government nor Brexit clarity, UK businesses might continue to put off their hiring and investment decisions.

As a result, UK GDP (Gross Domestic Product) growth might decelerate in 2020, compared to if this week’s vote is decisive. In turn, this may affect the value of sterling.

Looking to the four days left until polling day, it’s reported that PM Johnson will spend his time in Labour’s Northern “heartlands”, to try and turn as many “red” constituencies “blue” as he can.

Meanwhile, Labour’s Mr. Corbyn will unveil plans to begin renationalising the UK’s trains, water and mail industries within 100 days of taking office, reports Sky News. We’ll see if this affects the polls, and the pound.

Pound Euro Exchange Could Be Influenced, by UK GDP, ECB Decision

In addition, looking to this week, the sterling vs euro interbank exchange rate could be affected by key UK and Eurozone economic releases.

These include the UK’s GDP statistics for October, UK industrial and manufacturing production data for October, Germany’s ZEW economic sentiment survey for December, as well as the European Central Bank’s (ECB) latest interest rate decision, according to FX Street.

To begin with, UK GDP data for October is released tomorrow, at 09.30 GMT. It’s forecast that the economy grew by 0.1% that month, which would undo September’s minus 0.1% decline.

Moreover, if the UK economy expanded by 0.1% in October, this would be a positive start to Q4 2019, between October to December. Traditionally, strong, healthy GDP growth boosts sterling.

Also, tomorrow at 09.30 GMT, the UK’s industrial and manufacturing statistics for October will be released, by the Office for National Statistics (ONS). These are forecast at 0.2% growth and 0.0% respectively.

If these predictions are accurate, it might suggest that the UK’s industrial sector continues to feel the effects of the US/China trade war, much like factories across the world.

Meanwhile, turning to the Eurozone, Germany’s ZEW economic sentiment for this month is released on Tuesday 10th at 10.00 GMT. This is forecast at 0.0 in December, from November’s minus 2.1.

If this forecast is right, it would indicate that Germany’s businesses feel marginally more upbeat compared to last month. This may help buoy the Eurozone’s largest economy in late 2019.

Lastly, the ECB releases its latest interest rate decision, this Thursday 12th December at 12.45 GMT. This will be new President Christine Lagarde’s first meeting, so it’s thought unlikely that she’ll make radical changes to the Eurozone’s monetary policy.

As such, the euro bloc’s interest rates look set to remain at all-time lows of 0.0%, while the ECB continues its extraordinary stimulus, known as Quantitative Easing (QE).

However, even though Ms. Lagarde and the ECB’s Governing Council may keep monetary policy steady this week, low interest rates and QE traditionally weaken the euro.

This is because, when Eurozone interest rates are low, the world’s money managers tend to sell the euro, in search of higher returns on investment elsewhere. So the ECB’s decision this Thursday may be worth watching.

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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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