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Pound Euro Exchange Near 31-Month High, as Polls Show Tory Lead

Market CommentaryPound Euro Exchange Near 31-Month High, as Polls Show Tory Lead
Pound Euro Exchange Near 31-Month High, as Polls Show Tory Lead
Sterling Vs Euro.

The sterling vs euro interbank exchange rate stands at 1.1731 today at the time of writing. This is 0.27% below the pound’s recent 31-month high against the Eurozone’s common currency, its highest since May 14th 2017, reached last Wednesday 27th November, at 1.1763.

By comparison, back on August 10th 2019, the pound to euro interbank exchange rate was as low as 1.0646. So it’s since risen by 10.10%, or by over 11.5 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 might make it more affordable for you, if you’re buying property abroad on the Costa del Sol or the Cote d’Azur, or if you’re making regular payments to the Eurozone.

To stay updated 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 find out what’s influencing the value of the pound against the euro on the interbank market, go to our GBP to EUR Exchange Rate Updates page. Here, simply click on the latest article.

One reason why the pound to euro interbank exchange rate stands near this 31-month high today is because the Conservatives retain a lead in the polls, ahead of the UK’s general election.

Another factor why the sterling vs euro interbank exchange rate remains at this level is because Germany’s Social Democratic Party (SDP) has elected a little-known duo, as the new leaders.

However, looking over the next week-and-a-half, the GBP may be affected against the EUR, because many opinion polls show the gap between the Conservatives and Labour Party is shrinking.

In addition, the pound to euro interbank exchange rate could be impacted, by new European Central Bank President Christine Lagarde’s first appearance today, at the European Parliament.

Sterling Vs Euro Near 31-Month High, as Polls Show Tories Retain Lead

As I mention, one reason why the pound to euro interbank exchange rate stands near this 31-month high today is because, according to the opinion polls, the Conservative Party retains a lead over the UK’s other political parties, ahead of the general election on Thursday 12th December.

It’s thought that, if a single party wins this month’s vote, it will add to the UK’s political stability.

In particular, according to The Guardian newspaper’s poll tracker today, the Tories stand at 43% support at present. This is 12% ahead of closest rival the opposition Labour Party’s 31% support.

Traditionally, under the UK’s First Past The Post political system, the first-place party needs to be at least 10% ahead, to win a sizeable majority of MPs in Parliament, to thus govern effectively.

In general, the financial markets want a single political party to win this month’s UK general election.

This is because, if one party wins, they can quickly finalise Brexit, get on with negotiating the UK’s future trade deal with the EU, and work on the UK’s domestic priorities like schools and hospitals. In turn, this may reassure British businesses, lifting the UK’s economic growth in 2020.

For example, analysts at Union Bancaire Privée (UBP) said recently that:

“Provided the Conservatives win the election, the UK outlook should stabilise. Sterling and domestically-focused equities stand to gain under such a scenario, and a stronger currency, rising consumer spending and increased domestic activity would support industries” across the UK. So this has supported sterling.

After all, if a single political party wins the December 12th election, they may have enough MPs to finalise Brexit, without support from other parties or opposition amendments.

In this case, Brexit might be finalised before the UK’s current deadline of January 31st. This could bring relief to the world’s money managers, encouraging them to buy British assets, and strengthening the pound.

Pound Euro Exchange Gains, as Germany’s SPD Elects Little-Known Duo

In addition, another reason why the sterling vs euro interbank exchange rate remains near its 31-month high today is because, this Saturday 30th November, Germany’s Social Democratic Party (SPD) has elected a little-known duo as leaders.

The SPD forms part of Chancellor Angela Merkel’s so-called ‘Grand Coalition’, so their election may partly destabilise Germany’s political outlook.

To be specific, this weekend the little-known pair Saskia Esken and Norbert Walter-Borjans were elected the new leaders of Germany’s SPD, one of the country’s oldest and largest political parties.

They defeated the better-known and more-established duo, Klara Geywitz and Olaf Scholz. Mrs. Esken’s and Mr. Walter-Borjans’ victory was a surprise to the world’s financial markets.

Mrs. Esken’s and Mr. Walter-Borjans’ campaigned on a platform of renovating the SPD, which has fallen sharply in the opinion polls in recent years.

In particular, the SPD members feel ambiguous toward the party’s forming part of Dr. Merkel’s ‘Grand Coalition’ government. The SDP is the junior member, so many feel that they prop up Dr. Merkel, while shedding their visibility.

As a result, Mrs. Esken and Mr. Walter-Borjans may now try to gain more visibility within the ‘Grand Coalition’, or leave it entirely. In this case, Dr. Merkel would have to form an alternative government, or call federal elections in Germany, according to the Financial Times.

This would contribute to Germany’s political instability, at a time when Brexit and the US/China trade war are slowing the German economy.

For example, Holger Schmieding, chief economist at Berenberg, says that "The vote by SPD members in favour of Saskia Esken/Norbert Walter-Borjans can be seen as a de facto vote against political stability and against the current “grand coalition.”

“The outcome of the SPD membership ballot raises the probability that the SPD will walk out,” adds Mr. Schmieding. So this has lifted the GBP/EUR rate today.

GBP to EUR May Be Affected, as Some Polls Show Labour Gaining on Tories

However, looking to the week-and-a-half or so until the UK’s general election on December 12th, the sterling vs euro interbank exchange rate may be affected, because a number of opinion polls this weekend show the opposition Labour Party gaining on the Conservatives.

It’s thought that this raises the possibility of a ‘hung’ Parliament, in which no single party gains a majority of MPs, reports PoliticsHome.com.

For example, according to BMG’s newest poll this weekend, Labour has risen by 5%, up to 33% support, while the Tories are down 2%, to 39% support.

Meanwhile, surveys by Kantar, Ipsos MORI and YouGov all show that Labour’s support is rising recently. Overall, nine out of the ten companies that are tracking the UK election suggest that the left-wing party’s support is gaining.

All in all, the financial markets now factor in a 64% chance that the Conservatives will win a majority of MPs at the UK’s election, down 6% from 70% a fortnight ago.

This tells us that the world’s money managers are paying attention to these surveys, and lowering the odds of a victory for Prime Minister Boris Johnson’s party. The probability of a decisive result now stands below 2/3rds.

Importantly, many of this weekend’s opinion polls show that the Tories’ lead over Labour now stands below 10%.

It’s thought that this raises the odds of a ‘hung’ Parliament, in which a government is formed, yet without a majority of MPs to pass laws. Investors are worried that, in these circumstances, the UK’s Brexit and domestic legislative deadlock may continue into 2020.

In particular, if this month’s UK election result isn’t decisive, then the UK could run up against its current Brexit deadline, of January 31st.

In this case, the UK may again run the risk of exiting the EU with ‘No Deal’, or a third extension may have to negotiated, for more time to finalise Brexit. This may further add to the UK’s political uncertainty, slow economic growth, and affect the pound.

Pound Vs Euro May Be Affected, by Lagarde Appearance, US Ruling on French Tax

In addition, turning to this week, the sterling vs euro interbank exchange rate may be affected by the Eurozone’s political and monetary announcements.

To begin with, European Central Bank (ECB) President Christine Lagarde will make her first appearance in the European Parliament today. Also, later this week the United States will rule regarding France’s ‘Digital Services Tax’.

In particular, Ms. Lagarde may explain her approach to running the Eurozone’s central bank. Ms. Lagarde joined the ECB only on November 1st, while Eurozone interest rates stand at an all-time low of 0.0%.

As a result, the former French minister may further pressure the Eurozone’s more solvent member states to spend more, so called ‘fiscal easing’. This would be to support the Eurozone economy.

Ms. Lagarde makes her appearance at the European Parliament today at 14.00 GMT. So her remarks might be worth watching, for their effect on the sterling vs euro interbank exchange rate.

Meanwhile, later this week, the USA will announce its ruling regarding France’s ‘Digital Services Tax’. Recently, France imposed this tax on companies like Google, Amazon and Facebook, to ensure that they pay what France feels is their fair share of tax.

However, these are all American companies, so the USA has decided to investigate if France is unfairly penalising its businesses, according to Reuters.

If the USA rules that France’s tax is illegal or unfair, then Washington may impose new tariffs on Paris. This would further escalate the global trade war, and could slow the Eurozone’s already-stagnant economy.

In turn, America’s decision this week could also influence the value of the pound versus the euro on the interbank market.

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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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