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Sterling Vs Euro Hits 39-Month High, as Tories Win Majority

Market CommentarySterling Vs Euro Hits 39-Month High, as Tories Win Majority
Sterling Vs Euro Hits 39-Month High, as Tories Win Majority
Pound Euro Exchange.

The sterling vs euro interbank exchange rate has hit 1.2081 today. This is its highest in 39 months, or since September 3rd 2016.

By comparison, back on August 10th this year, the pound to euro interbank exchange rate was as low as 1.0646. So it’s since risen by 13.47%, or over 14 cents.

This could benefit you, if you’re buying property abroad on the Costa del Sol or the Cote d’Azur, or if you need currency for tuition fees to study at a Eurozone university.

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 39 months.

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 rates.

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

One reason why the GBP to EUR interbank exchange rate has hit this 39-month high is because the Conservative Party has won a surprisingly large majority, at the UK’s general election.

However, looking to the foreseeable future, the sterling vs euro interbank exchange rate could be affected, by the UK’s tight schedule to negotiate its future trade deal with the EU in 2020.

In addition, the pound euro exchange rate on the interbank market might be affected, by next week’s UK economic data including unemployment statistics, and the Bank of England’s meeting.

GBP to EUR Hits 39-Month High, as Boris’ Party Wins Clear Majority

As I mention, one reason why the sterling vs euro interbank exchange rate has reached this 39-month high of 1.2081 today is because Prime Minister (PM) Boris Johnson’s Conservative Party has won an unexpectedly large majority, at the UK’s general election yesterday.

It’s thought that this will enable Brexit to be finalised, and provide economic and political stability to the UK in 2020.

To be specific, PM Johnson’s Tory Party has won 364 seats at the UK election, 66 more than the last vote in 2017. By comparison, Jeremy Corbyn’s opposition Labour Party has lost 42 seats, down to 203 MPs.

At the time of writing, there’s one UK constituency of 650 total yet to declare. In the UK’s Parliament, a political party needs to earn at least 326 seats to gain a majority.

As a result, it looks like the Conservatives will be able to govern with a big majority, of perhaps 73 or 74 MPs. Speaking early this morning, PM Johnson said that “This one-nation Conservative government has been given a powerful new mandate to get Brexit done.”

Meanwhile, both Labour leader Mr. Corbyn and Liberal Democrats leader Jo Swinson look set to resign their positions.

The Tories’ clear electoral win has strengthened the pound, because PM Johnson now looks set to ratify his previously-agreed Brexit deal very soon, perhaps as soon as next week, before Christmas.

In turn, this will remove a significant degree of uncertainty from the UK’s economic and political outlook, ever since the UK originally voted in favour of Brexit, on June 23rd 2016.

PM Johnson looks set to ratify Brexit in the near future, because during the election campaign, all of his Conservative Party candidates pledged to vote in favour of his deal, if they were elected.

What’s more, with a large majority, PM Johnson will no longer be subject to the vetoes of small groups of MPs, like the European Research Group (ERG) or Democratic Unionist Party (DUP).

In turn, what with Brexit outlook clearer and the UK set to enjoy a stable, majority government, British businesses may feel more inclined to hire and buy new technology.

Since the Brexit referendum, UK firms have often put off their decisions, so it’s thought that there’s lots of “pent up” investment to be released. In turn, this could accelerate the UK’s economic growth in 2020.

For example, Kallum Pickering, an economist with Berenberg, says that "An orderly Brexit can lift confidence and spending in the next two years after more than three years of heightened uncertainty and gradually softening momentum.”

The UK’s GDP (Gross Domestic Product) growth could accelerate from 1.3% in 2019, up to 1.8% in 2020 now, thereby benefiting the pound.

Pound Euro Exchange May Be Affected, by UK’s Tight Trade Deal Schedule

However, turning to next year, the sterling vs euro interbank exchange rate might be affected, because even when PM Johnson ratifies the UK’s Brexit agreement, the country will then focus on negotiating its future trade deal with the EU.

According to the current timetable, the UK has only until December 31st 2020 to do this, when such deals usually take six or seven years to reach.

In particular, it’s thought likely that, over the next twelve months, PM Johnson might have to ask the EU for more time to negotiate the trade deal, or risk the UK importing and exporting with the EU on World Trade Organisation (WTO) terms.

This risks shifting the uncertainty from whether Brexit will be finalised or not, to whether the UK will reach its trade deal within the time specified.

For example, Ranko Berich at Monex Europe says that "important questions remain unanswered and so, for now, Sterling’s rally may struggle to extend much further."

Meanwhile, Marc André Fongern, at MAF Global Forex, says that “the GBP's upside potential may be limited as the trade negotiations with the EU are likely to be anything but hassle-free." So this could affect sterling.

Sterling Vs Euro Might Be Influenced, by Packed Next Week for Economic Data

Elsewhere meanwhile, turning to the more immediate future, the pound to euro interbank exchange rate could be impacted by the UK’s packed economic data schedule next week.

Key releases include the latest survey of the UK’s vast services sector, unemployment statistics for October, inflation data for November, as well as the Bank of England’s last interest rate decision of 2019.

To begin with, next Monday 16th December, watchdog IHS Markit releases its UK services sector “flash” PMI (Purchasing Managers’ Index) for this month. This is forecast to arrive at 48.9, somewhat below November’s 49.3.

The services sector makes up roughly 80% of the UK’s economy, so if this forecast proves accurate, it could bode ill for the UK’s output at the end of this year.

Then, on Tuesday 17th December, UK unemployment statistics for the three months to October will be made public, by the Office for National Statistics (ONS). It’s predicted that UK joblessness rose slightly compared to September, by 0.1% to 3.9%.

However, on the optimistic side, economists pencil in that UK wage growth accelerated 0.2% from August to October, up to 3.8%.

On Wednesday 18th December, UK inflation figures for November are due, at 09.30 GMT. The financial markets forecast these at 1.5%, the same as October.

If these proves accurate, then UK price pressures would remain notably below the Bank of England’s (BoE) official target of 2.0%. This may discourage the UK’s central bank from hiking interest rates above their current 0.75%.

On Thursday 19th December, the UK’s retail sales for November are released at 09.30 GMT, and forecast for 0.2% growth, from October’s minus 0.1% fall.

If so, this would suggest that Britain’s shoppers felt happier to splash out on the high street and online last month. Retail sales make up a significant part of the UK’s economy, so this too may affect Britain’s performance in late 2019.

Also on Thursday, the Bank of England makes its latest interest rate decision, at 12.00 GMT. It’s widely forecast that the BoE will keep UK borrowing costs stable, at 0.75%.

However, now that the Tories have won a majority government, and the outlook for Brexit is clear, the BoE could revise its economic growth and inflation forecasts for 2020. If so, this might affect sterling’s value.

Lastly, next Friday 20th December at 09.30 GMT, the UK’s revised estimate for GDP growth in Q3, between July and September, is released. This is forecast to remain at 0.3%.

If so, this would suggest that the UK economy grew steadily over the Summer. Looking ahead, we’ll see how PM Johnson’s new Tory government affects the UK’s expansion in the coming months, and its affect on sterling.

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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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